Suppose that facemasks are produced by two firms: Masked and FaceOff. As their masks cater to...

 

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Suppose that facemasks are produced by two firms: Masked and FaceOff. As their masks cater to different tastes, their products are differentiated. They compete in Bertrand fashion. Demand functions are given by: QM 2000 80PM +60PF = - QF 200080PF + 60PM = with QF and QM the quantities produced by FaceOff and Masked respectively, and PF and PM their respective prices. Marginal costs for both firms are constant and equal to 50. (a) Derive the best response functions for the two firms. (b) Derive the equilibrium prices and profits. (b) Suppose that FaceOff and Masked would form a cartel. What prices would they charge? What would be their profits? Suppose that facemasks are produced by two firms: Masked and FaceOff. As their masks cater to different tastes, their products are differentiated. They compete in Bertrand fashion. Demand functions are given by: QM 2000 80PM +60PF = - QF 200080PF + 60PM = with QF and QM the quantities produced by FaceOff and Masked respectively, and PF and PM their respective prices. Marginal costs for both firms are constant and equal to 50. (a) Derive the best response functions for the two firms. (b) Derive the equilibrium prices and profits. (b) Suppose that FaceOff and Masked would form a cartel. What prices would they charge? What would be their profits?

Answer rating: 100% (QA)

a To derive the best response functions for the two firms we need to find the quantities produced by each firm that maximize their profits given the other firms production quantity Lets start with Fir... View the full answer