Question
1. Two oligopoly firms, Busy-Time Inc. (B) and Home Internet Service (H), produce differentiated Internet service and compete over prices in a one-shot game. The
1. Two oligopoly firms, Busy-Time Inc. (B) and Home Internet Service (H), produce differentiated Internet service and compete over prices in a one-shot game. The quantity demanded for firm B is qB = 96 - 2pB + pH, the quantity demanded for firm H is qH = 96 - 2pH + pB, where qB, qH 0 and pB, pH 48. Marginal cost (c) is 12 for both firms, and fixed costs are zero. Use the equilibrium results from Topic 8 to calculate the equilibrium prices for each firm. 2. Following on from question 2 directly above, calculate the equilibrium quantities for each firm. 3. Questions one and two show that product differentiation can increase prices above marginal costs. In words, briefly describe whether this finding implies lower social welfare overall.
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