Let Firm a Face Demand Curve $Q _ { A } = 100 - P _ { A } + .5 P _ { B }$

question 34

Multiple Choice

Let firm A face demand curve $Q _ { A } = 100 - P _ { A } + .5 P _ { B }$ and firm B face demand curve $Q _ { B } = 100 -$ $P _ { B } + .5 P _ { A }$ . Products $\mathrm { A }$ and $\mathrm { B }$ both have constant marginal cost of production of 10 per unit (and no fixed cost) . Each firm acts as a Bertrand competitor. What is firm B's profit-maximizing price when firm A sets a price of $\$ 70$ for its good?

• A) \(\$ 70\)
• B) \(\$ 72.5\)
• C) \(\$ 74\)
• D) \(\$ 76.5\)

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Definitions:

Decreasing Costs

Situations in which costs diminish as the level of production or scale of operations increases.

Efficiency

The extent to which time, effort, or cost is well-used for the intended task or purpose.

Total Cost Function

An equation that represents the total cost incurred by a firm in the production of goods or services, as a function of output level.

Inverse Demand

A representation of demand in economics where the price of a good is expressed as a function of the quantity demanded.