oducts, i.e., when the two firms that compete produce slightly different products. Consider two price-setting ns, 1 and 2, each with marginal cost c, that produce goods, 1 and 2, that are imperfect substitutes. Some stomers are loyal to a particular variety of the good so both firms can still have positive sales when they set ferent prices. Demand for firm 1's output, q1, as a function of the prices of both products, p, and p2 , is en by q1 = 2 – 3p1 + 3p2. And the demand for firm 2's output, q2, is given by q2 = 6 – 2p2 + P1. How can we tell, by looking at the demand functions above, that in the preferences of consumers the two products are substitutes? Explain your answer. . Write this strategic situation as a simultaneous game between the two firms, specifying the set of players, the set of alternatives and the preferences of each firm. Write down the profit equation of each firm as a function of the price it sets and that of the other firm.
oducts, i.e., when the two firms that compete produce slightly different products. Consider two price-setting ns, 1 and 2, each with marginal cost c, that produce goods, 1 and 2, that are imperfect substitutes. Some stomers are loyal to a particular variety of the good so both firms can still have positive sales when they set ferent prices. Demand for firm 1's output, q1, as a function of the prices of both products, p, and p2 , is en by q1 = 2 – 3p1 + 3p2. And the demand for firm 2's output, q2, is given by q2 = 6 – 2p2 + P1. How can we tell, by looking at the demand functions above, that in the preferences of consumers the two products are substitutes? Explain your answer. . Write this strategic situation as a simultaneous game between the two firms, specifying the set of players, the set of alternatives and the preferences of each firm. Write down the profit equation of each firm as a function of the price it sets and that of the other firm.
Chapter1: Making Economics Decisions
Section: Chapter Questions
Problem 1QTC
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