PROBLEM IV. Consider an industry consisting of two firms (i = 1,2) that are engaged in a Bertrand price competition. The demand function for the product of firm i is given by q; = 24 – 9p;+ 6pj. The marginal cost of production for each firm is zero. Q12. The collusive price of the products is (а) 4 (b) 5 (c) 1 (d) 6 (e) 2

PROBLEM IV. Consider an industry consisting of two firms (i = 1,2) that are engaged in a Bertrand price competition. The demand function for the product of firm i is given by q; = 24 – 9p;+ 6pj. The marginal cost of production for each firm is zero. Q12. The collusive price of the products is (а) 4 (b) 5 (c) 1 (d) 6 (e) 2

ENGR.ECONOMIC ANALYSIS

14th Edition

ISBN:9780190931919

Author:NEWNAN

Publisher:NEWNAN

Chapter1: Making Economics Decisions

Section: Chapter Questions

Problem 1QTC

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6. Two identical firms that have the cost function C(q) = 4qj, where j = {1,2} are competing in a homogenous good market. The two firms make simultaneous decisions on price, and they face industry demand Q(P) = 20-p. What is the Bertrand-Nash equilibrium profit of each firm? Hints for (b) and (c): Solve for each firm j's output (q;) and use the fact that Ij = p;qj - Cj(qj). b. Now, suppose the two firms are deciding whether to set a collusive market price of $6 (this means that they would both charge $6). Solve for their profits under this pricing scheme. a. C. If one of the firms decides to deviate from the collusive scheme and undercut its rival's price by $1, how much profit would it earn?
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