1. (a)Which demand curve is relevant when rivalswillmatch any price change?
2. (b)Which demand curve is relevant when rivalswill notmatch any price change?
3. (c)Suppose the manager believes that rivals will match price cuts but will not match
4. price increase.
5. What price will the firm be able to charge if it produces 20 units?
6. How many units will the firm sell if it changes a price of $70?
7. (d)In Gelate, Pennsylvania, the market for compact discs has evolved as follows: There are two firms that each use a marquee to post the price they charge for compact discs. Each firm buys CDs from the same supplier at a cost of $5.00 per disc. The inverse market demand in their area is given by P = 10 - 2Q, where Q is the total output
8. produced by the two firms.
9. Solve for the Bertrand equilibrium price and market output.
10. Would your answer differ if the products were not perfect substitutes? Explain.