Question D1. There is a two firm oligopoly where each firm is selling differentiated products. Firm 1 faces a demand curve q, = 10 – p1 + 0.75p2 and Firm 2 q2 = 10 – p2 + 1/3p1. Each firm has fixed marginal costs of 5. a) If firm 1 sets a price of p, what is firm 2's best response? b) Work out the Nash Equilibrium for the game detailed above. c) Does this model still suffer from the Bertrand Paradox? Explain your answer.

Question D1. There is a two firm oligopoly where each firm is selling differentiated products. Firm 1 faces a demand curve q, = 10 – p1 + 0.75p2 and Firm 2 q2 = 10 – p2 + 1/3p1. Each firm has fixed marginal costs of 5. a) If firm 1 sets a price of p, what is firm 2's best response? b) Work out the Nash Equilibrium for the game detailed above. c) Does this model still suffer from the Bertrand Paradox? Explain your answer.

Microeconomic Theory

12th Edition

ISBN:9781337517942

Author:NICHOLSON

Publisher:NICHOLSON

Chapter15: Imperfect Competition

Section: Chapter Questions

Problem 15.5P

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