Question
3. Bertrand numerical Consider the following demand and cost functions for two firms A and B. [1] Q A = 10,000 - 1.5P A +
3. Bertrand numerical
Consider the following demand and cost functions for two firms A and B.
[1] QA = 10,000 - 1.5PA + 2.5PB
[2] TCA = 5,000 + 20QA
[3] QB = 15,000 - 2PB + 1.0PA
[4] TCB = 5,000 + 25QB
Questions:
(a) Calculate: (a) equilibrium prices; (b) equilibrium quantities; (c) profits.
(b) Given the above functions, how would you introduce a new stricter manufacturing regulation - e.g., the firms need to clean up environmental pollutants? Write the relevant equations to show this. What would be the anticipated effects on prices, quantities, and profits? [If you change any of the above equations, you should be able to solve for the new equilibrium.
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