Two firms compete in prices in a market for a homogeneous product. In this market there...

 

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Two firms compete in prices in a market for a homogeneous product. In this market there are N> 0 consumers; each buys one unit if the price of the product does not exceed 10, and nothing otherwise. Consumers buy from the firm selling at a lower price. In case both firms charge the same price, assume that N/2 consumers buy from each firm. Assume zero production cost for both firms. (a) (10 points) Find the Bertrand equilibrium prices and corresponding profits for a single-shot game, assuming that the firms choose their prices simultaneously. Explain why this is an equilibrium. (b) (10 points) Now suppose that the unit production cost of firm 2 is 4, but the unit cost of firm 1 remained 0. Find the Bertrand equilibrium prices and corresponding profits for the single-shot game. Explain. Two firms compete in prices in a market for a homogeneous product. In this market there are N> 0 consumers; each buys one unit if the price of the product does not exceed 10, and nothing otherwise. Consumers buy from the firm selling at a lower price. In case both firms charge the same price, assume that N/2 consumers buy from each firm. Assume zero production cost for both firms. (a) (10 points) Find the Bertrand equilibrium prices and corresponding profits for a single-shot game, assuming that the firms choose their prices simultaneously. Explain why this is an equilibrium. (b) (10 points) Now suppose that the unit production cost of firm 2 is 4, but the unit cost of firm 1 remained 0. Find the Bertrand equilibrium prices and corresponding profits for the single-shot game. Explain.