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Unformatted text preview: Economics 104B Problem Set #4 (Due June 2) Spring 2011 1. In Bertrand competition firms decide independently what prices to set to maxi- mize their individual profits. Suppose that there are two firms in a market selling the same product. Let D ( p ) = a- bp be the market demand and let c 1 and c 2 be firm 1 and firm 2s constant marginal costs, respectively. (Assume a,b > 0, and < c 1 < c 2 < a/b .) Let p m be the optimal price for firm 1 when firm 1 is the only seller in the market. Assume p m < c 2 . Does a Bertrand equilibrium exist? If your answer is yes, find a Bertrand equilibrium price. If your answer is no, explain why. 2. A monopolistic firm, call it Firm 1, has decided to introduce a new video game. In deciding what type of manufacturing plant to build, it has the choice of two technologies. Technology A is publicly available which results in total cost func- tion C A ( q ) = 10 + 8 q....
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This note was uploaded on 12/26/2011 for the course ECON 104B taught by Professor Qin during the Fall '09 term at UCSB.
- Fall '09