3) Assuming that firms compete a la Cournot, that all firms have the same marginal cost, and
that demand is linear, when is price most sensitive to changes in marginal cost: in a market
with very few firms or in a market with many firms? Show this formally. [Hint: assume
demand π = π β ππ]
b) Consider a Bertrand duopoly with differentiated products. Demand curves are given by
π! = 600 β 2π! β π"
π" = 600 β π! β 2π"
Suppose that the cost functions are given by (π#) = 60π# , for π = 1, 2. Find the equilibrium
outputs, the prices and the profits.
a.
Price is most when demand is elastic. It can be expressed as p=a-bQ meaning consumers will buy consume more when price is less .
b.
"\\frac{dTC}{Q}=\\frac{60Q}{Q}=60"
Price ="600-60-120=420"
Profit"P\u00d7Q=420\u00d760=25,200"
Comments
Leave a comment