Please do 5.7, starts with \"at a busy interseciton on route 309 in quakertown\"
ID: 1202847 • Letter: P
Question
Please do 5.7, starts with "at a busy interseciton on route 309 in quakertown".... DO PARTS A AND B, Part B continues onto the second image but the question is only two parts, parts A and B. SHOW ALL STEPS. INTERMEDIATE MICRO.. AT LEAST DO PART A PLEASE
firms described d firms described in Exercise 5.3 if Firm 1's marginal cost is $30 per unit and Firm 2's marginal cost is S.5 orve Ior the Nash-Bertrand equimbn for the $10 per unit. M 5.6 In the Coke and Pepsi example, what is the effect of a specific tax, , on the equilibrium prices? (Hint: What does the tax do to the firm's marginal cost? You do not have to use math to provide a qualita- tive answer to this problem.) At a busy intersection on Route 309 in Quakertown, Pennsylvania, the convenience store and gasoline station, Wawa, competes with the service and gaso- line station, Fred's Sunoco. In the Nash-Bertrand equilibrium with product differentiation competi- tion for gasoline sales, the demand for Wawa's gas is qw 680 500pw + 400ps, and the demand for Fred's gas is qW-680-500ps + 400pw. Assume that the marginal cost of each gallon of gasoline is m = $2. The gasoline retailers simultaneously set their prices a. What is the Bertrand-Nash equilibrium? 5.7 b. Suppose that for each gallon of gasoline sold, Wawa earns a profit of 25¢ from its sale of saltyExplanation / Answer
a)
Each firm’s marginal cost for gasoline is MC= $2 per gallon
Find the best response functions for both firms:
Revenue for Wawa gas
R1 = PW*QW = (680 – 500PW + 400PS)PW
Profit maximization implies:
MR = MC
680 – 1000PW + 400PS = 2
PW = 1/1000 (678 + 400PS)
which gives the best response function:
PW = 0.678 + 0.4PS
By symmetry, Fred’s best response function is:
PS = 0.678 + 0.4PW
Bertrand-Nash equilibrium is determined at the intersection of these two best response functions:
Pw = Ps
Substitute this value to get:
PS = 0.678 + 0.4PW
PS = 0.678 + 0.4PS
0.6Ps = 0.678
Ps = Pw = 1.13
The usual Bertrand model predicts a price at Nash equilibrium equal to the marginal cost. But in this case, due to different demand curves, the result is different.