ECO 260

Industrial Organization

Fall 2005

 

Homework 6

 

Due Monday, December 12, 2005

 

 

1.            Assume a game of Bertrand Competition with a homogeneous product.

 

The market demand firm for the two firms engaging in such competition is given by

 

            P = 30 – 5Q, where Q = q₁ + q_2.

 

                The marginal cost for each firm is 5 (i.e., MC = c =5).

 

a)            What is the Bertrand price P^B?

b)         What is the Bertrand quantity q^B sold by each firm?  (Assume they spilt the output evenly.)

 

 

 

2.         Now assume the firms engage in a game of Stackelberg competition with the same market demand and marginal costs as above.

 

            a)            What is the Stackelberg quantity for each firm q^S?

            b)            What is the market quantity Q^S?

            c)            What is the Stackelberg price P^S?

 

 

 

3.            Compare these price and quantities to those if the firms were Cournot competitors moving simultaneously.