Question

Bertrand model:

Price competition in simultaneous move homogeneous product duopolyó explain in words.

Consider the brick producers again. This time, each firm simultaneously and independently picks the price. Since the

product is homogeneous, the consumer buys from the producer o§ering at a cheaper price. The market demand curve

faced by the two firms is P = 1 - 0.00001 ( x + y), and costs are C1 (x) = 0.04x and C2 (y) = 0.1y

where firm 1 produces x units and firm 2 produces y units of bricks. What price will each one of them charge in equilibrium? Why not any

other price----elaborate? How much will be the profit in equilibrium?

Answer 1