Answered step by step
Verified Expert Solution
Question
1 Approved Answer
Two rms, Firm 1 and Firm 2, compete by simultaneously choosing prices. Both rms sell an identical product for which each of 100 consumers has
Two rms, Firm 1 and Firm 2, compete by simultaneously choosing prices. Both rms sell an identical product for which each of 100 consumers has a maximum willingness to pay of $40. Each consumer will buy at most 1 unit, and will buy it from whichever firm charges the lowest price. If both rms set the same price, they share the market equally. Costs are given by cf(q,-) = 16q,~. Because of government regulation, rms can only choose prices which are integer numbers, and they cannot price above $40. Answer the following: a) (0.25 point) If Firm 1 chooses p1 = 36, Firm 2's best response is to set what price? b) (025 point) If Firm 2 chooses the price determined in the previous question, Firm 1's best response is to choose what price? 0) (1 point) If Firm 1 chooses p1 = 9, Firm 2's best response is a range of prices. What is the lowest price in this range
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