PROBLEM (3) Consider the differentiated goods Bertrand price competition model where firms A and B produce similar goods and sell them at på and på. The demand for each firm's product is given by qA = 400-3pA - 2 pв and qв = 400 - 3pв - 2pA, and MCA(qA) = ATCA(qA) = 40 and MCв(qв) = ATCв(qB) = 40. (a) Are the two goods substitutes or complements? Do the firms want to charge higher prices or lower prices, the higher the opponent's price? (Is the best response price increasing (or decreasing, or neither) in the opponent's price?) Calculate the Bertrand equilibrium prices. (b) Now suppose the firms -instead of competing to maximize their own individual profits- decide to "collude" and charge prices to maximize their joint profits (sum of their profits). What would be each firm's optimal price? Are these prices greater/smaller/the same compared to the prices in (a) ?

PROBLEM (3) Consider the differentiated goods Bertrand price competition model where firms A and B produce similar goods and sell them at på and på. The demand for each firm's product is given by qA = 400-3pA - 2 pв and qв = 400 - 3pв - 2pA, and MCA(qA) = ATCA(qA) = 40 and MCв(qв) = ATCв(qB) = 40. (a) Are the two goods substitutes or complements? Do the firms want to charge higher prices or lower prices, the higher the opponent's price? (Is the best response price increasing (or decreasing, or neither) in the opponent's price?) Calculate the Bertrand equilibrium prices. (b) Now suppose the firms -instead of competing to maximize their own individual profits- decide to "collude" and charge prices to maximize their joint profits (sum of their profits). What would be each firm's optimal price? Are these prices greater/smaller/the same compared to the prices in (a) ?

ENGR.ECONOMIC ANALYSIS

14th Edition

ISBN:9780190931919

Author:NEWNAN

Publisher:NEWNAN

Chapter1: Making Economics Decisions

Section: Chapter Questions

Problem 1QTC

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