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Consider a Bertrand model, the pricing competition model. The market demand is P=200-Q. Consumers only buy...

Consider a Bertrand model, the pricing competition model. The market demand is P=200-Q. Consumers only buy from the firm charging a lower price. If the two firms charge the same price, they share the market equally. The marginal cost for firm 1 is 50, but the marginal cost for firm 2 is 40. There is no fixed cost.

Find the social welfare (SW) at the equilibrium.

A.

None of the other answers are correct.
B.

SW is about 11250.
C.

SW is about 1500.
D.

SW is about 0.
E.

SW is about 12750.
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Answer: SW is about 1500

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