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Question 3: Price competition vs quantity competition Suppose that market demand for golf balls is described by Q = 90 - 3P, where Q is
Question 3: Price competition vs quantity competition Suppose that market demand for golf balls is described by Q = 90 - 3P, where Q is measured in kilos of balls. There are two firms that supply the market. Firm 1 can produce a kilo of balls at a constant unit cost of $15 whereas firm 2 has a constant unit cost equal to $10. a. Suppose the firms compete in quantities. How much does each firm sell in a Cournot equilibrium? What is the market price and what are the firms' profits? b. Suppose the firms compete in price. How much does each firm sell in a Bertrand equilibrium? What is market price and what are the firms' profits? Question 4 Refer again to the golf ball market described in problem 3. a. Would your answer in 3b change if there were three firms, one with unit cost = $20 and two with unit cost =$10? Explain why or why not
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