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Suppose two firms produce differentiated goods and compete through prices. The demand for the good produced by firm i is

qi= Di(pi,pj)= 1-bpi-dpj
with 0?(pi,pj)= (pi-c)(1-bpi+dpj).

a) derive each firm's best response function. Are the two firms' actions strategic complements or substitutes?

b) Find the Bertrand equilibrium, and the equilibrium profit of each firm.

Microeconomics, Economics

  • Category:- Microeconomics
  • Reference No.:- M941107

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