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Suppose the market demand for apples is given by Qd = 1600-100P and there are two firms operating in it, each with a total cost of TC = 100 + 10 x q.

a) Suppose the firms compete by picking prices simultaneously, like in Bertrand competition. What will be the equilibrium price, quantity, and pro fit to each firm.

b) Suppose the firms compete by picking quantities simultaneously, like in Cournot competition. What will be the equilibrium price, quantity, and profit to each firm.

c) Suppose Firm 1 picks a price before Firm 2. Firm 2 observes the priced picked by Firm 1 and picks its own price. Consumers buy from the lowest price firm, and the highest price firm sells nothing. If the fi rms pick the same price, they split the market demand equally. Could there be an equilibrium in which Firm 1 picks a price of 40?

Microeconomics, Economics

  • Category:- Microeconomics
  • Reference No.:- M941211

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