Question
I am not even sure how to solve this problem. Can someone explain this? Consider a market with two firms. Demand in this market is
I am not even sure how to solve this problem. Can someone explain this?
Consider a market with two firms. Demand in this market is given byp(Q) = 100Q. The twofirms have identical cost functions equal toC(q) = 10q. Suppose the two firms are engaged inCournot competition, meaning that they each set their quantity independently andQ=q1+q2.
2. Bertrand competition
Suppose the same two firms from above are now engaged in Bertrand competition, meaning that they each set their price independently. All of the market demand is captured by whichever firm sets the lower price. If firms choose the same price, demand is split evenly.
2.1. What is each firm's best response to the opponent firm's price being greater than 55? Note that 55 is the optimal monopoly price.
2.2. What is each firm's best response to the opponent firm's price being greater than 10 but less than or equal to 55?
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