Consider the incomplete-information version of the spatial Bertrand model with firms i = 1, 2. For each firm, 25% of 1000 potential consumers are partially informed and only know about firm i’s product. The remaining 50% know about both firms’ products. Consumers are evenly distributed along a one-mile street and the shops are located at either end of the street. Assume all consumers have maximum willingness to pay of 16, (there-and-back) transport costs are 2, and the location of the indifferent consumer is xm = (p2 – p1 + t)/2, where pi is the price at shop i and t is transport costs. How much profit does each firm make if p1 = p2 = 12 and marginal (and average) cost c = 10 for both firms?

ENGR.ECONOMIC ANALYSIS
14th Edition
ISBN:9780190931919
Author:NEWNAN
Publisher:NEWNAN
Chapter1: Making Economics Decisions
Section: Chapter Questions
Problem 1QTC
icon
Related questions
Question

Consider the incomplete-information version of the spatial Bertrand model with firms i = 1, 2. For each firm, 25% of 1000 potential consumers are partially informed and only know about firm i’s product. The remaining 50% know about both firms’ products. Consumers are evenly distributed along a one-mile street and the shops are located at either end of the street. Assume all consumers have maximum willingness to pay of 16, (there-and-back) transport costs are 2, and the location of the indifferent consumer is xm = (p2 – p1 + t)/2, where pi is the price at shop i and t is transport costs. How much profit does each firm make if p1 = p2 = 12 and marginal (and average) cost c = 10 for both firms?

Expert Solution
steps

Step by step

Solved in 3 steps

Blurred answer
Knowledge Booster
Probability and Expected Value
Learn more about
Need a deep-dive on the concept behind this application? Look no further. Learn more about this topic, economics and related others by exploring similar questions and additional content below.
Similar questions
  • SEE MORE QUESTIONS
Recommended textbooks for you
ENGR.ECONOMIC ANALYSIS
ENGR.ECONOMIC ANALYSIS
Economics
ISBN:
9780190931919
Author:
NEWNAN
Publisher:
Oxford University Press
Principles of Economics (12th Edition)
Principles of Economics (12th Edition)
Economics
ISBN:
9780134078779
Author:
Karl E. Case, Ray C. Fair, Sharon E. Oster
Publisher:
PEARSON
Engineering Economy (17th Edition)
Engineering Economy (17th Edition)
Economics
ISBN:
9780134870069
Author:
William G. Sullivan, Elin M. Wicks, C. Patrick Koelling
Publisher:
PEARSON
Principles of Economics (MindTap Course List)
Principles of Economics (MindTap Course List)
Economics
ISBN:
9781305585126
Author:
N. Gregory Mankiw
Publisher:
Cengage Learning
Managerial Economics: A Problem Solving Approach
Managerial Economics: A Problem Solving Approach
Economics
ISBN:
9781337106665
Author:
Luke M. Froeb, Brian T. McCann, Michael R. Ward, Mike Shor
Publisher:
Cengage Learning
Managerial Economics & Business Strategy (Mcgraw-…
Managerial Economics & Business Strategy (Mcgraw-…
Economics
ISBN:
9781259290619
Author:
Michael Baye, Jeff Prince
Publisher:
McGraw-Hill Education