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Suppose that firms 1 and 2 operate under conditions of const

Paper help Economics Suppose that firms 1 and 2 operate under conditions of const

Economics

Suppose that firms 1 and 2 operate under conditions of const

Suppose that firms 1 and 2 operate under conditions of constant average and marginal cost but that… Show more Suppose that firms 1 and 2 operate under conditions of constant average and marginal cost but that firm 1’s marginal cost is c1=10 and firm 2’s is c2=8. Market demand is Q = 500 – 20P. a. Suppose ï¬rms practice Bertrand competition, that is, setting prices for their identical products simultaneously. Compute the Nash equilibrium prices. (To avoid technical problems in this question, assume that if ï¬rms charge equal prices then the low-cost ï¬rm makes all the sales.) b. Compute ï¬rm output, ï¬rm proï¬t, and market output. c. Is total welfare maximized in the Nash equilibrium? If not, suggest an outcome that would maximize total welfare, and compute the deadweight loss in the Nash equilibrium compared to your outcome. • Show less

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