Assume that four mineral water producers compete in prices in a Bertrand setting. The firms differ with respect to their costs. Firm A’s marginal cost per ton is 8 $, firm B’s is 7 $, firm C’s is 9 $, and firm D’s is 7.50 $.
a) Which firm will serve the market? What price (approximately) will it charge?
b) Would your answer change if firms A and B had somewhat greater fixed costs of production than firms C and D? Justify your answer in less than 80 words.
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