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Use the following information to answer the next SEVENquestions: Two firms - Firm 1 and Firm 2 - compete as Bertrand competitors in a differentiated
Use the following information to answer the next SEVENquestions: Two firms - Firm 1 and Firm 2 - compete as Bertrand competitors in a differentiated products market. Their demand curves are given by Q1=100-P1+0.90P2and Q2=100-P2+0.5P1. The marginal cost of Firm 1 is MC1=10 and the marginal cost of Firm 2 is MC2=5. 34. It appears that Firm 1's customers are (more/less) ___________ brand loyal than Firm 2's customers. 35. What is Firm 1's reaction function? __________________ 36. What is Firm 2's reaction function? ___________________ 37. What is the Bertrand equilibrium price of Firm 1? $ ______________ 38. What is the Bertrand equilibrium price of Firm 2? $ ______________ Now suppose the marginal cost of Firm 1 were to increase. 39. As a result, the Bertrand equilibrium price of Firm 1 would (increase/decrease/stay the same) ________________ 40. As a result, the Bertrand equilibrium price of Firm 2 would (increase/decrease/stay the same) ________________
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