Consider a "Betrand price competition model" between two profit maximizing widget producers say A and B. The marginal cost of producing a widget is 4 for each producer. Each widget producer has a capacity constraint to produce only 5 widgets. There are 8 identical individuals who demand 1 widget only, and individuals value each widget at 6. If the firms are maximizing profits, then which of the following statement is true: a) Firm A and Firm B will charge 4 b) Firm A and Firm B will charge 6 c) Firm A and Firm B will charge greater than or equal to 5 d) None of the options are correct. Explain clearly.
Consider a "Betrand price competition model" between two profit maximizing widget producers say A and B. The marginal cost of producing a widget is 4 for each producer. Each widget producer has a capacity constraint to produce only 5 widgets. There are 8 identical individuals who demand 1 widget only, and individuals value each widget at 6. If the firms are maximizing profits, then which of the following statement is true: a) Firm A and Firm B will charge 4 b) Firm A and Firm B will charge 6 c) Firm A and Firm B will charge greater than or equal to 5 d) None of the options are correct. Explain clearly.
Chapter15: Imperfect Competition
Section: Chapter Questions
Problem 15.3P
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Consider a "Betrand price competition model" between two profit maximizing widget producers say A and B. The marginal cost of producing a widget is 4 for each producer. Each widget producer has a capacity constraint to produce only 5 widgets. There are 8 identical individuals who demand 1 widget only, and individuals value each widget at 6. If the firms are maximizing profits, then which of the following statement is true:
a) Firm A and Firm B will charge 4
b) Firm A and Firm B will charge 6
c) Firm A and Firm B will charge greater than or equal to 5
d) None of the options are correct.
Explain clearly.
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