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?

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Definitions:

Developing Routines

The process of establishing a series of actions regularly followed, aimed at improving efficiency or performance.

Mindfulness Meditation

A mental practice that involves focusing one's mind on the present moment, acknowledging and accepting feelings, thoughts, and bodily sensations, used as a therapeutic technique.

Low Conscientiousness

A personality trait associated with a tendency towards disorganization, carelessness, and a lack of responsibility.

Impulsivity

The tendency to take risks, not plan, and be high in sensation-seeking, roughly equivalent to low conscientiousness.