Can you help me solve this please? Consider a Bertrand oligopoly with two firms (Firm 1 and Firm 2) both selling goods that areimperfect substitutes for each other and competing by choosing prices simultaneously. Theirmarket demands are3192 = 800 – 2p2 +91 = 1,200 –For simplicity, assume the marginal cost is zero for both firms (MC,= MC2 = 0).a. Find the best response curve for each firm. Hint: The marginal revenue curves will be3MR 3 1,200 -Зр, +1MR2 = 800 – 4p2 +5P1And the condition MR = MC will give the optimal price (best response) for each firm.b. Find the optimal price for each firm. Hint: Find the Nash equilibrium, that is, the combinationof mutual best responses.c. Find the quantity sold by each firm.99-

Best response function is determined where MR = MC

Consider a Bertrand oligopoly with two firms (Firm 1 and Firm 2) both selling goods that are imperfect substitutes for each other and competing by choosing prices simultaneously. Their market demands are 3 3 1 91 = 1,200 92 = 800 – 2p2 + %D - For simplicity, assume the marginal cost is zero for both firms (MC, = MC2 = 0). %3D a. Find the best response curve for each firm. Hint: The marginal revenue curves will be 3 MR, = 1,200 – 3p1 +5P2. 1 MR2 = 800 – 4p2 +5P1 %3D And the condition MR = MC will give the optimal price (best response) for each firm. b. Find the optimal price for each firm. Hint: Find the Nash equilibrium, that is, the combination of mutual best responses. c. Find the quantity sold by each firm.

Consider a Bertrand oligopoly with two firms (Firm 1 and Firm 2) both selling goods that are imperfect substitutes for each other and competing by choosing prices simultaneously. Their market demands are 3 3 1 91 = 1,200 92 = 800 – 2p2 + %D - For simplicity, assume the marginal cost is zero for both firms (MC, = MC2 = 0). %3D a. Find the best response curve for each firm. Hint: The marginal revenue curves will be 3 MR, = 1,200 – 3p1 +5P2. 1 MR2 = 800 – 4p2 +5P1 %3D And the condition MR = MC will give the optimal price (best response) for each firm. b. Find the optimal price for each firm. Hint: Find the Nash equilibrium, that is, the combination of mutual best responses. c. Find the quantity sold by each firm.

Microeconomic Theory

12th Edition

ISBN:9781337517942

Author:NICHOLSON

Publisher:NICHOLSON

Chapter15: Imperfect Competition

Section: Chapter Questions

Problem 15.1P

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