Question
Suppose Cola and Pepsi's demand curves are given by Q1 = (64 + 2P2) - 4P1 and Q2 = (50+ P1) -5P2, respectively. Coca-Cola's marginal
Suppose Cola and Pepsi's demand curves are given by Q1 = (64 + 2P2) - 4P1 and Q2 = (50+
P1) -5P2, respectively. Coca-Cola's marginal cost is $5 per unit, and Pepsi's marginal cost is $4
per unit
a) What is Coca-Cola's profit-maximizing price when Pepsi's price is $8? [7 marks]
b) What is the equation of Coca-Cola's price reaction function (i.e., Coca-Cola's profitmaximizing
price when Pepsi sets an arbitrary price P2)? [8 marks]
C) What are Coca-Cola's and Pepsi's profit-maximizing prices and quantities at the Bertrand
equilibrium?
Step by Step Solution
There are 3 Steps involved in it
Step: 1
Get Instant Access to Expert-Tailored Solutions
See step-by-step solutions with expert insights and AI powered tools for academic success
Step: 2
Step: 3
Ace Your Homework with AI
Get the answers you need in no time with our AI-driven, step-by-step assistance
Get Started
Microeconomics Theory And Applications With Calculus
Authors: Jeffrey M. Perloff
4th Edition
134167384, 134167381, 978-0134167381
