PS4 - Problem Set 4 Ying Chen ECN 416 Game Theory Three...

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Problem Set 4 Ying Chen ECN 416 Game Theory Three questions due Tuesday, February 23, at the beginning of class 1. Bertrand Model revisited Suppose two f rms sell identical products and engage in price competition. The market demand function is = 100 and the consumers will buy from the f rm that o f ers a lower price. Unlike what we assumed in class, let’s make the assumption here that if both f rms set the same price, then all consumers buy from f rm 1 .M o r e o v e r , assume that f rm 1 ’s marginal cost of production is 10 whereas f rm 2 ’s marginal cost of production is 15 . Neither f rm has f xed cost and both are pro f t maximizers. Suppose the f rms choose prices simultaneously and they can charge any positive price. (a) Write down the payo f functions of each f rm.
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PS4 - Problem Set 4 Ying Chen ECN 416 Game Theory Three...

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