PRACTICE PROBLEM 9

PRACTICE PROBLEM 9.4 An aspirin manufacturer has agreed to sell its product to two drugstore chains at a per unit price of $10. At this price, the manufacturer earns $6 of profit on every unit sold. The inverse demand curve facing the two chains depends on the amount of retail ad- vertising. It is P = 40 - (91 +92) if there is no advertising, and P=55 - (91 +92) if either firm mounts an advertising campaign. Such an advertising campaign costs $150. a. Will either chain engage in advertising under Cournot competition? Under Bertrand competition? b. Will the dealer wish to have the chains engage in advertising?