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Microeconomic Theory 11th Edition by Walter Nicholson,Christopher Snyder
Edition 11ISBN: 978-1111525538Microeconomic Theory 11th Edition by Walter Nicholson,Christopher Snyder
Edition 11ISBN: 978-1111525538 Exercise 5
Consider the following Bertrand game involving two firms producing differentiated products. Firms have no costs of production. Firm 1's demand is
q 1 = 1 - p 1 + bp 2 ,
where b 0. A symmetric equation holds for firm 2's demand.
a. Solve for the Nash equilibrium of the simultaneous price-choice game.
b. Compute the firms' outputs and profits.
c. Represent the equilibrium on a best-response function diagram. Show how an increase in b would change the equilibrium. Draw a representative isoprofit curve for firm 1.
q 1 = 1 - p 1 + bp 2 ,
where b 0. A symmetric equation holds for firm 2's demand.
a. Solve for the Nash equilibrium of the simultaneous price-choice game.
b. Compute the firms' outputs and profits.
c. Represent the equilibrium on a best-response function diagram. Show how an increase in b would change the equilibrium. Draw a representative isoprofit curve for firm 1.
Explanation
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Verified
a.
In Bertrand competition, firms choose...
Microeconomic Theory 11th Edition by Walter Nicholson,Christopher Snyder
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