Problem 6 Consider a Bertrand model, but where the firms have different costs. S
ID: 2427242 • Letter: P
Question
Problem 6
Consider a Bertrand model, but where the firms have different costs. Specifically, suppose that
firm 1 has a marginal cost of $0.90 per unit and firm 2 has a marginal cost of $1.00 per unit. Prices
must be named in increments of $0.01.
A. Is it an equilibrium for both firms to charge $0.90?
B. Is it an equilibrium for both firms to charge $1.00?
C. Is it an equilibrium for firm 1 to charge $0.99 and for firm 2 to charge $1.00?
D. Is it an equilibrium for firm 1 to charge $0.95 and for firm 2 to charge $0.96?
Explanation / Answer
a) No since the firm 2 cost would be more than that i.e 1.
b) Yes , Since both the firm will not be at loss.
c) Yes , Since both the firm will not be at loss.
d) No since the firm 2 cost would be more than $0.96 i.e 1.