Scenario: Two Firms, Firm 1 and Firm 2, Make Differentiated

Multiple Choice

Scenario: Two firms, Firm 1 and Firm 2, make differentiated products and compete in a duopoly market. The firms do not have a fixed cost. Firm 1's cost is $30 per unit, while Firm 2's cost is $25 per unit. (So they are the marginal cost and the average total cost) . There are 1,000 consumers in this market. The demand is divided between the two firm in the following way:
• If Firm 1's price is less than twice Firm 2's price, then everyone buys from Firm 1.
• If Firm 1's price is more than twice Firm 2's price, then everyone buys from Firm 2.
• If Firm 1's price is equal to twice Firm 2's price, then half of the consumers buy from Firm 1 and the other half buy from Firm 2.
-Refer to the scenario above.Suppose Firm 1 sets the price at $50.If Firm 2 sets its price above $25,then its profit is ________.If Firm 2 sets its price below $25,then its profit is ________.If Firm 2 sets its price at $25,then its profit is ________.

A) $0; negative; positive
B) $0; negative; $0
C) $0; positive; negative
D) $0; $0; $0