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Bertrand competition - asymmetric cost question Consider the Bertrand competition example in the lecture notes. P(Q)=31-2Q...

Bertrand competition - asymmetric cost question

Consider the Bertrand competition example in the lecture notes. P(Q)=31-2Q , firm B’s cost function is CB(Q) = 2Q. Firm A’s cost function remains the same at CA(Q) = Q. Furthermore, constrain prices to be divisible only into cents. there is a discreteness imposed on the strategy choice.

1) Determine firm A’s best response function PˆA (PB). Argue your answer.

2) Determine firm B’s best response function PˆB (PA). Argue your answer.

3) What is the price at which output goods are sold in the Bertrand Nash equilibrium? Carefully argue your answer.

4) How much demand is firm A facing in the Bertrand Nash equilibrium?

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