2013-1 Midterm

E is automatically set to be what price does firm 1

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Unformatted text preview: t price P that is unmet by firm 2 (i.e., is automatically set to be ). What price does firm 1 set in the SPE? d) [5] Consider the setup from question 1c, but assume that both firms instead have cost function , where is the firms’ common constant marginal cost. Find firm 1’s SPE profit, and justify your answer. e) [5] Give the economic intuition for why firm 1’s profit from 1c differs qualitatively from the correct answer to 1d? (Explain in words. No points for computing the profit from 1c.) 2. (20 points) Consi...
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