Two Firms That Are Bertrand Competitors Are Producing Differentiated Goods

question 64

Essay

Two firms that are Bertrand competitors are producing differentiated goods at a marginal cost of zero. The demand curves facing each firm are as follows:
q₁ = 72 - 6P₁ + 4P₂
q₂ = 72 - 6P₂ + 4P₁
a. Suppose that Firm 2 sets P₂ = $12. What price should Firm 1 set to maximize profit?
b. Suppose that Firm 2 sets P₂ = $3. What price should Firm 1 set to maximize profit?
c. In a Nash equilibrium, what is the price charged by each firm?

---

Definitions:

Conveyor Belt

A continuous, moving belt that transports materials or objects from one place to another in a short distance, commonly seen in factories and airports.

On-Line Funny Animal Videos

Video content available on the internet featuring amusing activities or behaviors of animals.

Employee-At-Will

A contractual relationship in which an employee can be dismissed by an employer for any reason not prohibited by law and without warning.

Wrongful Discharge

An employment termination made in violation of legal rights or company policy, often lacking legitimate or lawful reason.