Question
The television market in South Africa has two major suppliers producing differentiated television models. The monthly demand functions of the two suppliers is as follows:
The television market in South Africa has two major suppliers producing differentiated television models. The monthly demand functions of the two suppliers is as follows:
Samsung: Q1 = 450-2P1+P2
LG: Q2 = 450-2P2+P1
The marginal costs of production are R60 per unit and fixed costs are equal to zero.
Part 1
Suppose the two producers compete by setting their quantities in accordance with the Cournot model.
a) Derive the two reaction functions of the two firms
b) Determine the output levels of the two producers at the Nash equilibrium
c) Determine the price and the profits made by each producer
Part 2
Suppose the two firms set their prices in accordance with the Bertrand model with zero conjectural variation assumption
a) Derive the reaction function of the two firms
b) Determine the prices, the output and profits of the two producers
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