Question
Suppose that market demand for golf balls is described by Q = 90 3P , where Q is measured in kilos of balls. There are
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 firms compete in quantities. How much does each firm sell in a Cournot equilibrium? What is the market price and what are firms' profits?
b. Suppose firms compete in price. How much does each firm sell in a Bertrand equilibrium? What is market price and what are firms' profits?
c. Would your answer in part b. change if there were three firms, one with unit cost of 20 and two with unit cost of 10? Explain why or why not.
d. Would your answer in part b. change if firm 1's golf balls were green and endorsed by Tiger Woods, whereas firm 2's are plain and white? Explain why or why not.
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