Question 2) Oligopoly with differentiated goods Consider two Bertrand competitors in the market for brie, François and Babette

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Question 2) Oligopoly with differentiated goods

Consider two Bertrand competitors in the market for brie, François and Babette. The cheeses of François and Babette are differentiated, with the demand for François's cheese given by q_f = 30 - p_f + p_b , where Fq is the quantity François sells, Fp is the price François charges, and Bp is the price charged by Babette. The demand for Babette's cheese is similarly given as q_{b = 30 - Pb + Pf.} Assume that the marginal cost of producing cheese is zero.

a)Find the Bertrand equilibrium prices and quantities for these two competitors.

b)How profitable will each firm be?

 

Question 3: Monopolistic Competition

A Hairdresser works a monopolistically competitive market. The inverse demand for her service is P= 8-0.05Q. Assume hairdressing has a constant marginal cost of $2per haircut.

a)To maximize profit, how many clients should this hair dresser have each day?

b)What is the haircut price?

c)What will be this hairdresser's daily profit?

d)In reality, firms in monopolistic competition face fixed costs in the short run. Given the answers to the previous questions, what would this hairdresser' fixed costs have to be for this industry to be in long-run equilibrium?