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Two firms produce differentiated products that are substitutes

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Two firms produce differentiated products that are substitutes. Let p1 be the price chosen by Firm 1, and p2 be the price chosen by Firm 2. The demand for firm 1's product is given by 91 = 20 - 2p1 + P2, and the demand for firm 2's product is given by 42 = 20 - 2p2 + p 1. The two firms compete by choosing their prices. Consider the following outcomes: (1) p1 = P2 = 8. (ii) p1 = P2 = 11. (iii) p1 = 8.1, p2 = 8.4. Which of the below is the most likely matching? O ) is the Nash equilibrium when prices are chosen independently and simultaneously, (ii) is the cartel equilibrium when prices are chosen in coordination to maximize total profits, (iii) is the Nash equilibrium when prices are chosen independently and sequentially, first firm and then firm 2. ) is the cartel equilibrium when prices are chosen in coordination to maximize total profits, (ii) is the Nash equilibrium when prices are chosen independently and simultaneously, (iii) is the Nash equilibrium when prices are chosen independently and sequentially, first firm 1 and then firm 2. () is the cartel equilibrium when prices are chosen in coordination to maximize total profits, (ii) is the Nash equilibrium when prices are chosen independently and sequentially, first firm 1 and then firm 2 (iii) is the Nash equilibrium when prices are chosen independently and simultaneously. O i) is the Nash equilibrium when prices are chosen independently and sequentially, first firm 1 and then firm 2 (ii) is the Nash equilibrium when prices are chosen independently and simultaneously, (iii) is the cartel equilibrium when prices are chosen in coordination to maximize total profits O () is the Nash equilibrium when prices are chosen independently and simultaneously. (ii) is the Nash equilibrium when prices are chosen independently and sequentially, first firm 1 and then firm 2, (iii) is the cartel equilibrium when prices are chosen in coordination to maximize total profits. There are two firms producing an identical product. The market demand is Q(p) = a - p. Both firms have the same cost function: TC(q) = cq. We have 2c<a. Consider these four scenarios: (i) The two firms behave like Cournot oligopolists, (ii) The two firms behave competitively, (iii) One firm behaves competitively, the other firm behaves like a dominant firm, (iv) Two firms form a cartel. Rank these from the least efficient to most efficient equilibrium? O 0) is less efficient than (iv), (iv) is less efficient than (iii), (iii) is equally efficient as (ii) (ii) is less efficient than (i), (i) is less efficient than (iii), (iii) is less efficient than (iv) OO) is less efficient than (ii), (ii) is less efficient than (iii), (iii) is less efficient than (iv) (iv) is less efficient than (i), (i) is less efficient than (iii), (iii) is less efficient than (ii) (iv) is less efficient than (i), (i) is less efficient than (ii), (ii) is equally efficient as (ii) Two firms are producing an identical product. The market demand is linear, its inverse is given by P(Q) = a - bQ. There are no capacity constraints, both firms have constant marginal cost (MC). Both firms have MC = C. Assume 1.5c<a. Consider two scenarios: () MC of firm 1 drops to c/2. (ii) MC of both firms drops to c/2. In which model do we see a larger decrease in the market price in the Nash equilibrium? Bertrand (price competition) or Cournot (quantity competition)? [For Bertrand competition: Assumption 1: firms are not allowed to choose a price below their marginal cost. Assumption 2: When firm 1's marginal cost is c/2 and firm 2's marginal cost is c, all demand goes to firm 1 when both firms set the same price.] Bertrand for scenario (i), Bertrand for scenario (ii) Cournot for scenario (i), Cournot for scenario (ii) O Cournot for scenario (i), Bertrand for scenario (ii) O Cournot for scenario (i), same for scenario (ii) Bertrand for scenario (i), Cournot for scenario (ii)