The market demand curve for mineral water is P=15-Q. Suppose that there are two firms that produce mineral water, each with a constant marginal cost of 3 dollars per unit.
What price will they charge if they decide to collude? How much will be produced in the market? Calculate the firms’ profit margins. Explain your answer.
What price will they charge in a Bertrand price competition game? How much will be produced in the market? Calculate the firm’s profit margins. Explain your answer.
Consider a duopoly in which firms produce differentiated products. Demand curves are given by:
Q_1=75-P_1+0.5P_2
Sample Solution
Q_2=75-P_2+0.5P_1
Marginal cost is negligible (equal to 0) for both firms. Calculate their optimal prices.