Consider a differentiated-product price-setting duopoly in which two suppliers simultaneously advertise their prices.

Each buyer's purchasing decision is determined by the price difference between the two suppliers and the buyer's personal preference for one product versus the other. Every buyer always buys from one of the suppliers; total demand is a constant. Buyers vary according to their relative preference for one supplier versus the other.

Note that this is the Westco-and-Eastbury's case that we studied in class.

The (identical) marginal costs of both suppliers fall (go down) by the same small amount.

(Note that this is a cost change that affects both suppliers; not just one of the suppliers.)

This will

Group of answer choices

• reduce the suppliers' profits.
• result in no change to the suppliers' profits; their equilibrium profit margins do not change and total demand is fixed.
• increase their profits by more than the cost decrease.
• increase their profits, but by less than the cost decrease.