BERTRAND DUOPOLY: Company A and B decide how to price their commodities. If firm A chooses...
BERTRAND DUOPOLY:
Company A and B decide how to price their commodities.
If firm A chooses price Pa and the competitor chooses Pb, the quantity demanded from firm A is given by Qa=100-5Pa+2Pb.
Firm B is given by Qb=100-5Pb+2Pa.
The cost of producing one unit of the commodity is $10 for both firms.
1) Calculate the best response function for each firm.
2) Graph both best response functions in one diagram.
3) What is the Nash Equilibrium of these?
4) Calculate the profit for each firm at the Nash Equilibrium.
5) Find a different outcome(Pa,Pb) in which both firms have higher profits compared to the Nash Equilibrium scenario.
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BERTRAND DUOPOLY:
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