(3) Joe and Sarah's Investment Dilemma Suppose Joe and Sarah each have a patent on their respective product: no other supplier can provide their particular product. However, Joe and Sarah’s products are imperfect substitutes for each other. Consequently, they face the following respective consumer demand Qjoe = 300 – 15 Pjoe + 10 Psarah Qsarah = 300 – 15 Psarah + 10 Pjoe They face the following costs characterized by constant marginal cost and no fixed costs C(Qjoe) = 8 Qjoe C(Qsarah) = 8 Qsarah (3a) Assuming that each supplier charges marginal cost Pjoe = Psarah = $8, calculate the own-price and cross-price elasticities for Joe. (Sarah's are the same due to symmetry) (3b) Solve for Joe's and Sarah's respective reaction curves, assuming a Bertrand game. (3c) Solve for the Bertrand-Nash Equilibrium.
(3) Joe and Sarah's Investment Dilemma Suppose Joe and Sarah each have a patent on their respective product: no other supplier can provide their particular product. However, Joe and Sarah’s products are imperfect substitutes for each other. Consequently, they face the following respective consumer demand Qjoe = 300 – 15 Pjoe + 10 Psarah Qsarah = 300 – 15 Psarah + 10 Pjoe They face the following costs characterized by constant marginal cost and no fixed costs C(Qjoe) = 8 Qjoe C(Qsarah) = 8 Qsarah (3a) Assuming that each supplier charges marginal cost Pjoe = Psarah = $8, calculate the own-price and cross-price elasticities for Joe. (Sarah's are the same due to symmetry) (3b) Solve for Joe's and Sarah's respective reaction curves, assuming a Bertrand game. (3c) Solve for the Bertrand-Nash Equilibrium.
Principles of Microeconomics (MindTap Course List)
8th Edition
ISBN:9781305971493
Author:N. Gregory Mankiw
Publisher:N. Gregory Mankiw
Chapter17: Oligopoly
Section: Chapter Questions
Problem 9PA
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