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Suppose that rms 1 and 2 operate under conditions of constant average and marginal cost but that rm 1’s marginal cost is c1 4 and ?rm 2’s is c2 2 Market demand is Q 50 20P Suppose

Suppose that ?rms 1 and 2 operate under conditions of constant average and marginal cost but that ?rm 1’s marginal cost is c1 = 4 and ?rm 2’s is c2 = 2. Market demand is Q = 50-20P. (a) Suppose ?rms practice Bertrand competition, that is, setting prices for their identical products simultaneously. Compute the Nash equilibrium prices. (To avoid technicalproblems in this question, assumethatif?rmschargeequalpricesthenthelow-cost?rmmakesallthesales.)(b) Compute ?rmoutput,?rmpro?t,andmarketoutput.(c) IstotalwelfaremaximizedintheNashequilibrium? Ifnot,suggestanoutcomethatwouldmaximize totalwelfare,andcomputethedeadweightlossintheNashequilibriumcomparedtoyouroutcome.

May 15 2020 View more View Less

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