Consider a market where two firms (A and B) compete in prices. Each firms produces a differentiated good which is a substitute to its rival's product. Demand is symmetric and linear in both prices. Moreover, both firms have the same constant marginal cost. Which of the following statements is correct? If the marginal cost of firm A goes up, then the equilibrium price of both firms goes down. If the marginal cost of firm A goes up, then the equilibrium price of firm A goes up and the equilibrium price of firm B goes down. If the marginal cost of firm A goes up, then the equilibrium price of both firms goes up. More information is needed to determine the effect on equilibrium prices.

Consider a market where two firms (A and B) compete in prices. Each firms produces a differentiated good which is a substitute to its rival's product. Demand is symmetric and linear in both prices. Moreover, both firms have the same constant marginal cost. Which of the following statements is correct? If the marginal cost of firm A goes up, then the equilibrium price of both firms goes down. If the marginal cost of firm A goes up, then the equilibrium price of firm A goes up and the equilibrium price of firm B goes down. If the marginal cost of firm A goes up, then the equilibrium price of both firms goes up. More information is needed to determine the effect on equilibrium prices.

Survey of Economics (MindTap Course List)

9th Edition

ISBN:9781305260948

Author:Irvin B. Tucker

Publisher:Irvin B. Tucker

Chapter9: Monopolistic Competition And Oligoply

Section: Chapter Questions

Problem 19SQ

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