Re: DSE 2011 Q.46

Posted by Stork on Jun 04, 2015; 7:30am
URL: http://discussion-forum.276.s1.nabble.com/DSE-2011-Q-46-tp7597280p7597372.html

Since firm 2 has a lower Ac than firm 1 it can set price= MC at 3/2 and earn 0 profit (firm 1 then produces nothing & also earns 0 profit ). However by setting price greater than 3/2 firm 2 can earn some profit. Substituting prices given in the options in the firms profit function firm 2 earns the same profit in both cases as shown in option d. Thats what i think, though it seems a bit vague