Unformatted text preview: What is the Nash equilibrium in prices (Bertrand equilibrium)? What are the profits for each firm? (II) Suppose now that the cost function for a firm is: C(q i ) = 20 q i + 400 ( i.e. the MC i is 20 and the fixed cost is 400) but the market demand is the same as in (I): P= 200 - Q. What is the free entry number of firms if they behave in a Cournot fashion? Justify. (III) Differentiated Products Two firms compete by choosing price. Their demand functions are: q 1 = 20 - p 1 + p 2 q 2 = 20 - p 2 + p 1, where p 1 and p 2 are the prices charged by each firm, and q 1 and q 2 the resulting quantities demanded. Marginal costs are zero. Suppose the two firms set their prices at the same time. Find the resulting Nash Equilibrium in prices. Calculate prices, quantities and profits for each firm....
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This note was uploaded on 05/15/2008 for the course ECON 467 taught by Professor Muniagurria during the Summer '06 term at University of Wisconsin.
- Summer '06