1. In the Bertrand model with product differentiation, suppose the two Bertrand Firms face thefollowing symmetric demand curves: q₁ = a - bip1 + b2P2 and 92 = abip2 + b₂P1. Assumeb1 b2 and 91.92 > 0. The cost function is C(q) = cq for each firm (or equivalently, MC =AC = c).a) Solve for each firm's best response function.b) Solve the Nash Equilibrium price and quantity.

In a Bertrand duopoly with differentiated products both the firm compete in prices by setting price…

1. In the Bertrand model with product differentiation, suppose the two Bertrand Firms face the following symmetric demand curves: q₁ = a - b₁p1 + b₂p2 and q2 = a - b₁p2 + b₂P₁. Assume b1 b2 and q1.92 > 0. The cost function is C(q) = cq for each firm (or equivalently, MC = AC = c). a) Solve for each firm's best response function. b) Solve the Nash Equilibrium price and quantity.

1. In the Bertrand model with product differentiation, suppose the two Bertrand Firms face the following symmetric demand curves: q₁ = a - b₁p1 + b₂p2 and q2 = a - b₁p2 + b₂P₁. Assume b1 b2 and q1.92 > 0. The cost function is C(q) = cq for each firm (or equivalently, MC = AC = c). a) Solve for each firm's best response function. b) Solve the Nash Equilibrium price and quantity.

Microeconomic Theory

12th Edition

ISBN:9781337517942

Author:NICHOLSON

Publisher:NICHOLSON

Chapter15: Imperfect Competition

Section: Chapter Questions

Problem 15.3P

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