There are two goods. The demand for good 1 is q1 = a-bp1 + dp2 and...

 

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There are two goods. The demand for good 1 is q1 = a-bp1 + dp2 and that for good 2 is q2 = a -bp2 + dp1 where a and b are strictly positive and d <b> The production cost of each good is 0. 3:1) Are the goods differentiated? 3:2) Suppose the goods are produced by the same firm (a monopoly). Calculate optimal prices. Compare the Lerner index and the inverse elasticity of demand for each good. Comment 3:3) Are goods strategic complements or substitutes? 3:4) Suppose now that the goods are produced by two different companies. Firms choose the price simultaneously, taking the rival's price as given. Calculate the Nash equilibrium prices and compare them with the results in question (3:2). There are two goods. The demand for good 1 is q1 = a-bp1 + dp2 and that for good 2 is q2 = a -bp2 + dp1 where a and b are strictly positive and d <b> The production cost of each good is 0. 3:1) Are the goods differentiated? 3:2) Suppose the goods are produced by the same firm (a monopoly). Calculate optimal prices. Compare the Lerner index and the inverse elasticity of demand for each good. Comment 3:3) Are goods strategic complements or substitutes? 3:4) Suppose now that the goods are produced by two different companies. Firms choose the price simultaneously, taking the rival's price as given. Calculate the Nash equilibrium prices and compare them with the results in question (3:2).

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31 Yes the goods are differentiated as they have different demand functions and their prices affect the demand for each other 32 As a monopoly the fir... View the full answer