Suppose that in the Bertrand ready-mix concrete market described in Section 19.2, Joe's marginal cost is $35

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Suppose that in the Bertrand ready-mix concrete market described in Section 19.2, Joe's marginal cost is $35 and Rebecca's is $40. Their prices must be quoted in pennies. Show that it is Nash equilibrium for Rebecca to set a price of $39.99. Show that it is also Nash equilibrium for Rebecca to set a price of $40.01 and Joe to set a price of $40. Finally, show that there is no Nash equilibrium in which sales will occur at a price above $40.01. Notice that Joe's profit on each unit is within a penny of his cost advantage.
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Microeconomics

ISBN: 978-1118572276

5th edition

Authors: David Besanko, Ronald Braeutigam

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