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Consider an industry with two products A and B. There are 100 consumers who value product A at vA=120 and product B at vB=280. The
Consider an industry with two products A and B. There are 100 consumers who value product A at vA=120 and product B at vB=280. The incumbent firm 1 produces both goods. Its marginal cost of production for good A is cA=80 and cB1=150 for good B. Suppose the incumbent firm 1 offers the two products as a bundle at a price p1. There is also a potential new entrant firm 2 who only produces good B at a marginal cost of cB2=80. Firm 2 charges a price p2 for good B. The firms compete in prices for the consumers. Which of the following statements is correct? A Firm 2 serves all consumers charging a price p2 = 110. B.Firm 1 serves all consumers charging a price p1 = 170. C.Firm 2 serves all consumers charging a price p2 = 60. D.Firm 1 serves all consumers charging a price p1 = 30. E. None of the above. ( Give correct answer with proper explanation of each and every option ) None of the above
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