1. According to the model of Bertrand price competition, competing firms will set prices according to...

1. According to the model of Bertrand price competition, competing firms will set prices according to which rule:

		marginal revenue equal marginal cost
		marginal revenue equal to average cost
		price equal to marginal revenue
		price equal to marginal cost
		price equal to average cost

2.

There are 2 firms that sell a certain software, Microsoft and Oracle. Microsoft invented the software and so they act as a market leader by first deciding how much of the software they are going to produce each month. Oracle observes this decision by Microsoft and then chooses how much they are going to produce. The marginal cost of producing the software is constant at $2 for both companies. The total market demand for the software is P = 84 - 0.2Q. According to the Stackelberg model, Microsoft will produce________________ units of the software as the first-mover and Oracle will produce _______________ units in response.

Answer BOTH questions to receive rating. If both questions are not answered, no rating will be given. BOLD all answers and make them clear and easy to read. Thanks.

Expert Solution

Rahul Sunny answered 1 year ago

Bertrand Price Competition Model: Suppose there are two firms, Firm 1 and Firm 2. They produce...

Bertrand Price Competition Model: Suppose there are two firms, Firm 1 and Firm 2. They produce a slightly differentiated product. The demand for the two products is given respectively by: Q1 = 12 – 2P1 + P2 Q2 = 12 – 2P2 + P1 Suppose each firm’s TFC = $20 and MC = $1 The firm’s compete in prices. Firm 1 chooses P1 to maximize its profit and Firm 2 chooses P2 to maximize profits. Find P1, P2, Q1, Q2

(a) What is the Bertrand trap faced by firms competing on setting prices? Explain in a...

(a) What is the Bertrand trap faced by firms competing on setting prices? Explain in a few sentences. Now let us consider the current trend of online sales. E-commerce (selling products in an online marketplace) represents an increasing fraction of economic transactions in many different industries compared to physical brick-and-mortar stores that sold products in the past. (b) Does e-commerce create a Bertrand trap? (Hint: Discuss in terms of how online shopping affects (i) product differentiation and (ii) capacity constraints...

Two firms are price-competing as in the standard Bertrand model. Each faces the market demand function...

Two firms are price-competing as in the standard Bertrand model. Each faces the market demand function D(p)=50-p. Firm 1 has constant marginal cost c1=10 and firm 2 has c2=20. As usual, if one of the firms has the lower price, they capture the entire market, and when they both charge exactly the same price they share the demand equally. 1. Suppose A1=A2={0.00, 0.01, 0.02,...,100.00}. That is, instead of any real number, we force prices to be listed in whole cents....

Two firms, 1 and 2, are engaged in Bertrand price competition. There are10possible buyers, each of...

Two firms, 1 and 2, are engaged in Bertrand price competition. There are10possible buyers, each of whom is willing to pay up to $4, and no more, for an item the firms sell .Firms 1 and 2 have identical unit costs of $2. However, each firm has a capacity of 8units, so that it cannot satisfy the whole market by itself (it can only satisfy 8 possible buyers, at most).The firms simultaneously announce prices, p1 and p2 respectively and the...

1. In a Bertrand model with identical firms and a non-differentiated product, price will increase in...

1. In a Bertrand model with identical firms and a non-differentiated product, price will increase in response to: a-) an increase in the number of firms. b-) a decrease in the number of firms. c-) an increase in marginal cost. d-) a decrease in marginal cost. 2. Which of the following is not a feature of the Cournot model? a Group of answer choices b In a Cournot equilibrium, neither firm can change its production and make more profit. c...

2. Suppose two firms are competing in prices (Bertrand) in an industry where demand is P=300-10Q....

2. Suppose two firms are competing in prices (Bertrand) in an industry where demand is P=300-10Q. Assume neither firm faces any fixed costs. (a) If both firms have MC=100, what is the equilibrium price? Profits? (b) Suppose one firm has MC=200 and one has MC=0. Approximately how much profit does each firm make? (c) Suppose one firm has MC=150 and one has MC=100. Approximately how much profit does each firm make?

Which of the following is a main objection to the standard Bertrand model of price competition...

Which of the following is a main objection to the standard Bertrand model of price competition that we have discussed? Group of answer choices The assumption that firms are not capacity constrained may be unrealistic. The model predicts that equilibrium profit per-unit is strictly negative. The model uses too much math. The assumption that firms directly set their own prices is unrealistic.

1. Imperfect competition is characterized by firms competing on price. True False 2. The shape of...

1. Imperfect competition is characterized by firms competing on price. True False 2. The shape of the demand curve facing the perfectly competitive firm is downward sloping. True False 3. An employer operating under conditions of a perfectly competitive labour market will hire labour up to the point where the marginal product of labour equals the wage rate. True False 4. If the price of a product rises, which of the following statements regarding the perfectly competitive firm is correct....

problem 1. Suppose two firms facing a demand D(p) compete by setting prices simultaneously (Bertrand Competition)....

problem 1. Suppose two firms facing a demand D(p) compete by setting prices simultaneously (Bertrand Competition). Firm 1 has a constant marginal cost c1 and Firm 2 has a marginal cost c2. Assume c1 < c2, i.e., Firm 1 is more efficient. Show that (unlike the case with identical costs) p1 = c1 and p2 = c2 is not a Bertrand equilibrium. how do you solve this?

Two firms sell an identical product and engage in simultaneous-move price competition (i.e., Bertrand competition). Market...

Two firms sell an identical product and engage in simultaneous-move price competition (i.e., Bertrand competition). Market demand is Q = 20 – P. Firm A has marginal cost of $1 per unit and firm B has marginal cost of $2 per unit. In equilibrium, firm A charges PA = $1.99(…) and firm B charges PB = $2.00 A clever UNC alum has patented a cost-saving process that can reduce marginal cost to zero. The UNC alum is willing to license...

Question