There is 2 question but each of them have several parts. 1. True or False. if Fa

Question

There is 2 question but each of them have several parts.

1. True or False. if False then show which part is wrong and correct the mistake.

A.To Strengthen impression of product differentiation, firm usually emphasizes the uniqueness or superiority of its product in advertising and marketing. These practices intensify market competition and lead to a lower price and profit for the firm.

B. In an Asymmetric market with both strong firms that are in good financial shape and weak ones that are financially troubled, it is the strongfirms that always start the price war. They believe that by drving their rivals out of the market they can control bigger market shares.

C. In the reality, sometimes it is difficult for a firm to obeerve its competitor prices, which can lead to the fluctuation of market price in the long run.

2. Switching Cost.

Two firms are engaged in a Bertrand competition, each with the same marginal cost 70. There are 200 consumers in the market, and everyone is willing to pay at most 79 for one unit of the good. In the beginning each firm has 100 consumers. It costs a consumer the switching cost s to switch from one firm to the other. Consumers know what prices are begin charged, law restricts the firs to charging whole-dollar valued price (eg they can charge 76, but not 76.5). In answering the question below, you are required to show all major steps leading to your conclusion.

Suppose that s= 5, what will be the Nash equilibrium

Suppose that s= 3, what will be the Nash equilibrium

Suppose that s= 1, what will be the Nash equilibrium

From A, B, C What can you say about the relationship between the switching cost and the market price.? Explain the economic reason in detail

If there is no switching cost i.e s =0, and all the other conditions remain the same as before , Find all the Nash Equlibria?

Two firms are engaged in a Bertrand competition, each with the same marginal cost 70. There are 200 consumers in the market, and everyone is willing to pay at most 79 for one unit of the good. In the beginning each firm has 100 consumers. It costs a consumer the switching cost s to switch from one firm to the other. Consumers know what prices are begin charged, law restricts the firs to charging whole-dollar valued price (eg they can charge 76, but not 76.5). In answering the question below, you are required to show all major steps leading to your conclusion.

A.Suppose that s= 5, what will be the Nash equilibrium

B.Suppose that s= 3, what will be the Nash equilibrium

C.Suppose that s= 1, what will be the Nash equilibrium

D. From A, B, C What can you say about the relationship between the switching cost and the market price.? Explain the economic reason in detail

E. If there is no switching cost i.e s =0, and all the other conditions remain the same as before , Find all the Nash Equlibria?

Explanation / Answer

1)

A) True

B) True

Asymmentric market with given circumstances the price taker would be the stronger firms which will be in better position to produce and marke goods

C) False

Market price is something that the strongest firm has set and it will remain the price of the goods, The stronger firm will try to survive at that price point. It will upgrade all the facilities to meet economies of scale and high efficiency lower cost mechanisms.

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