Answered step by step
Verified Expert Solution
Link Copied!

Question

1 Approved Answer

The demand functions for products 1 and 2 produced by firms 1 and 2 are: q1 =12-p1 +0.6p2 q2 = 12 +0.6p1 - p2 (a)

image text in transcribed

The demand functions for products 1 and 2 produced by firms 1 and 2 are:

q1 =12-p1 +0.6p2 q2 = 12 +0.6p1 - p2

(a) Find the differentiated Bertrand prices for goods 1 and 2. Find the profits of firms 1 and 2.

(b) Find the joint profit-maximizing (cartel) prices of goods 1 and 2 and the profits of firm 1 and 2.

(c) Find the price that would maximize the profit of either firm given that the other is charging the cartel price. Is undetected cheating on the cartel agreement profitable? Explain.

(d) Show that if producer 1 catches producer 2 cheating, it would be profitable for 1 to retaliate by reverting to its non-cooperative (differentiated Bertrand) price level.

(e) Suppose undetected cheating occurs for two periods in an infinitely repeated game. Upon discovery, competition reverts to differentiated Bertrand forever. Find the interest rate at which cheating becomes

image text in transcribed
2. The demand functions for products 1 and 2 produced by firms 1 and 2 are: q1 = 12 p1 + 0.6p2 q; = 12 +0.6p1 - p: (a) Find the differentiated Bertrand prices for goods 1 and 2. Find the profits of firms 1 and 2. (b) Find the joint prot-maximizing (cartel) prices of goods 1 and 2 and the profits of firm 1 and 2. (c) Find the price that would maximize the profit of either firm given that the other is charging the cartel price. ls undetected cheating on the cartel agreement protable? Explain. (d) Show that if producer 1 catches producer 2 cheating. it would be profitable for 1 to retaliate by reverting to its non-cooperative (differentiated Bertrand) price level. (e) Suppose undetected cheating occurs for two periods in an infiniter repeated game. Upon discovery. competition reverts to differentiated Bertrand forever. Find the interest rate at which cheating becomes profitable

Step by Step Solution

There are 3 Steps involved in it

Step: 1

blur-text-image

Get Instant Access to Expert-Tailored Solutions

See step-by-step solutions with expert insights and AI powered tools for academic success

Step: 2

blur-text-image

Step: 3

blur-text-image

Ace Your Homework with AI

Get the answers you need in no time with our AI-driven, step-by-step assistance

Get Started

Recommended Textbook for

International Economics

Authors: Thomas Pugel

16th Edition

0078021774, 9780078021770

More Books

Students also viewed these Economics questions

Question

Were multiple treatments used? Did they interfere with each other?

Answered: 1 week ago

Question

1. Maintain my own perspective and my opinions

Answered: 1 week ago