For each of these two scenarios, answer the following questions: (a) Should we use the Cournot model or the Bertrand model to study the firms' compe- tition? (b) Use your model of choice to predict each firm's profit level in equilibrium. (c) If the two firms collude as a monopoly and split profit evenly, what is each firm's profit level??
For each of these two scenarios, answer the following questions: (a) Should we use the Cournot model or the Bertrand model to study the firms' compe- tition? (b) Use your model of choice to predict each firm's profit level in equilibrium. (c) If the two firms collude as a monopoly and split profit evenly, what is each firm's profit level??
Managerial Economics: Applications, Strategies and Tactics (MindTap Course List)
14th Edition
ISBN:9781305506381
Author:James R. McGuigan, R. Charles Moyer, Frederick H.deB. Harris
Publisher:James R. McGuigan, R. Charles Moyer, Frederick H.deB. Harris
Chapter12: Price And Output Determination: Oligopoly
Section: Chapter Questions
Problem 2E
Related questions
Question
![Two competing firms produce homogenous products. They also have the iden-
tical total cost function: if a firm i produces quantity q, then its total cost is C, (4.) = 2q«-
If the two firms compete in quantities (Cournot model of duopoly), then the market
demand is P (g1, 2) = 60 – q1 - 2.
If the two firms compete in prices (Bertrand model of duopoly) and firm i chooses price
then the demand for firm i is
P..
60-P if p, is lower than the competitor's price
if p, is higher than the competitor's price
if p, is equal to the competitor's price
Now consider two scenarios:
A. The two firms are two law firms. One unit of product = one hour of labour.
B. The two firms are two avocado farms. One unit of product = one ton of avocados.
For each of these two scenarios, answer the following questions:
(a) Should we use the Cournot model or the Bertrand model to study the firms' compe-
tition?
(b) Use your model of choice to predict each firm's profit level in equilibrium.
(c) If the two firms collude as a monopoly and split profit evenly, what is each firm's
profit level?](/v2/_next/image?url=https%3A%2F%2Fcontent.bartleby.com%2Fqna-images%2Fquestion%2F24d9c7e6-6590-453b-bbfb-dd89ccf10ea2%2F0dc443a4-ff0f-4dff-8c91-8fe03a540568%2F34kjkdb_processed.jpeg&w=3840&q=75)
Transcribed Image Text:Two competing firms produce homogenous products. They also have the iden-
tical total cost function: if a firm i produces quantity q, then its total cost is C, (4.) = 2q«-
If the two firms compete in quantities (Cournot model of duopoly), then the market
demand is P (g1, 2) = 60 – q1 - 2.
If the two firms compete in prices (Bertrand model of duopoly) and firm i chooses price
then the demand for firm i is
P..
60-P if p, is lower than the competitor's price
if p, is higher than the competitor's price
if p, is equal to the competitor's price
Now consider two scenarios:
A. The two firms are two law firms. One unit of product = one hour of labour.
B. The two firms are two avocado farms. One unit of product = one ton of avocados.
For each of these two scenarios, answer the following questions:
(a) Should we use the Cournot model or the Bertrand model to study the firms' compe-
tition?
(b) Use your model of choice to predict each firm's profit level in equilibrium.
(c) If the two firms collude as a monopoly and split profit evenly, what is each firm's
profit level?
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