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HW III product differentiation

HW III product differentiation - Homework III Bus 247 Fall...

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Homework III Bus 247/ Fall 2008 Prof. Bradbury This assignment is due at the beginning of class, 12/02/2008. Assignments must be typed and stabled in order to receive credit. 1) The following reaction functions describe the profit maximization problem for two firms competing in terms of quantities. q 1 = R 1 q 2 = 480 q 2 2 q 2 = R 2 q 1 = 480 q 1 2 a. Find industry output in the Nash equilibrium. Indicate this solution on Figure 1 . b. Do these firms have identical costs structures? c. Is this a Bertrand or Cournot model? d. Does either firm have a dominant strategy? e. Redraw Firm 1's reaction function to show increased product differentiation. f. Assume that firm 1 was able to achieve perfect product differentiation, would firm 1 now have a dominant strategy? Figure 1. q 1 R 2 (q 1 ) R 1 (q 2 ) q 2 2) Two goods are related, the cross-price elasticity of the goods is 12 =− 2 . Are these goods compliments or substitutes.
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