problem code : 110609MICRO

[vishruti]

Consider two firms in Bertrand market model. The inverse demand of the two firms is Qi = a – 2Pi + Pj such that j, I = {1, 2} and i and j are distinct. Assume zero marginal cost.What is the equilibrium price, quantity and profit of both firms?

Now instead of setting prices simultaneously the firms now decide to set prices in a sequence starting with firm 1. That is, firm 2 sets its prices after the firm 1 has declared its price. Find the new equilibrium for the two firms and compare the results with the previous situation.

give equilibrium price , quantity and profit for both firms and both situations

[nidhi]

case1- P1=P2=a/3, Q1=Q2=2a/3, profit of each firm =2a^2 /9

[Smriti]

in case 1: price charged by both firms will be zero and hence profit will also be zero.
for the 2nd case: are the firms setting prices in discrete or continous units?

[vishruti]

answer for case 1 given by namrata is correct

and for case 2 its continous

[vishruti]

sorry it is nidhi who has replied to case1 of the question