4 Pages 1182 Words Mathematical Model


Firms 1 and 2 consequence horizontally differentiated fruits. The call-for for firm 1’s fruit is attached by the equation,
Q1 = 100−P1 +
P2 2
.
The call-for for firm 2’s fruit is attached by the equation,
Q2 = 200−4P2 + 2P1.
Firm 1’s ultimate absorb is MC1 = $10, timeliness firm 2’s ultimate absorb is MC2 = $20. The two firms cope in Bertrand rivalry, by concomitantly selecting prices.
Question 1: Is firm 2’s fruit a supply or a praise for firm 1’s fruit? Briefly expound. Your tally must allusion firm 1’s call-for operation. (2 Marks)
Question 2: Does the call-for for firm 2’s fruit convince the law of call-for? Briefly expound. Your tally must allusion firm 2’s call-for operation. (2 Marks)
Question 3: What is the equation of firm 1’s best-response operation? (4 Marks)
Question 4: What is the equation of firm 2’s best-response operation? (4 Marks)
Question 5: Find the makeweight prices. (2 Marks)
Question 6: Find the makeweight profits. (3 Marks)
Question 7: Which firm enjoys the elder traffic might?

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