Consider two duopolists whose demand functions are given by 91 = 2-2p1 - P2, and q2 = 2-2p2 - P1 where 91, 92, P₁ and p2 are quantities and prices. Their constant marginal costs are given by C1, C2 Assume that c2 = 1 is known to both firms, but c₁ is known only to firm 1. Firm 2 knows that c₁ car be either 1.2, or .8, with equal probabilities. The firms compete in prices in a simultaneous move game Define Firm 2's equilibrium price as p2. Define Firm 1's equilibrium as pth if its cost is high and pil i its cost is low. Then, equilibrium prices will be such that: 8 (a) pt¹ < p < p < 10 *h 10 (b) pil
Consider two duopolists whose demand functions are given by 91 = 2-2p1 - P2, and q2 = 2-2p2 - P1 where 91, 92, P₁ and p2 are quantities and prices. Their constant marginal costs are given by C1, C2 Assume that c2 = 1 is known to both firms, but c₁ is known only to firm 1. Firm 2 knows that c₁ car be either 1.2, or .8, with equal probabilities. The firms compete in prices in a simultaneous move game Define Firm 2's equilibrium price as p2. Define Firm 1's equilibrium as pth if its cost is high and pil i its cost is low. Then, equilibrium prices will be such that: 8 (a) pt¹ < p < p < 10 *h 10 (b) pil
Chapter15: Imperfect Competition
Section: Chapter Questions
Problem 15.4P
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