Assume Light Beer industry consists of two brands: Bud Light and Miller Lite with identical costs...

Assume Light Beer industry consists of two brands: Bud Light and Miller Lite with identical costs C(q)=5q+q2/2, MC(q)=5+q. Consumers view their products as identical. The market demand is:Q=125-p, The firms can either “collude” or “compete.”

a) What are the best response functions of the two brands?

b) If both compete, they play Cournot and each produces qn. Calculate the output, price and profits.

c) If both collude, they each produce qm (half the monopoly output Qm).Calculate qm, pm and profits for each brand.

d) Represent your results as a normal-form game. What is the Nash equilibrium if the game is only played once?

Expert Solution

Rahul Sunny answered 2 years ago

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