Problem 1: Consider the following Bertrand duopoly: two firms (A and B) are operating in a...

Problem 1: Consider the following Bertrand duopoly: two firms (A and B) are operating in a market where they produce identical products and compete on price. Assume that the market demand can be written as ? = 50 − ?. Assume that neither firm is capacity constrained so that either firm can satisfy the market demand at any price. Suppose further that the profit function for each firm can be written as ? = ?? − ?? = (? − ?)? where V is the constant marginal cost which we will assume is 2. What will be the price in the market? What will be the profits of each firm?

B) Consider the following change to the Bertrand duopoly described in the previous problem: suppose that the marginal costs of each firm are not the same but instead ?A = 4 and ?B = 2. What will be the price in the market? What will be the profits of each firm?

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Rahul Sunny answered 7 months ago

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