Let's consider if Firm 1 can do better by setting a price higher than thesolution to question (b). The downside of firm 1's setting a higher price isthat it will lose some of the market. The upside is that it will charge moreto any customer it keeps. The next question gets you to work out just howmany customers buy from firm 1 when the prices are 'close'. (c) (10 points) Suppose that prices p1 and p2 are close enough that themarket is split between the two firms. Use expressions (a) and (b)above to find the location of the customer who is exactly indifferentbetween buying from firm 1 and buying from firm 2. Use your answerto argue that, when the market is split, firm 1's demand is given by: D1(p1; p2) = (p2 + t -p1)/2t, We now have all the information we need to calculate firm 1's best responseto each p2. When the market is split, firm 1's profits are given by u1(p1; p2) = (p1 -c)D1(p1,p2) =[p1 (p2 + t + c) -(p1)^2-c(p2+t)]/2t, Notice it follows from expressions (1) and (2), that for intermediate levels of p2, the best response of firm 1 to firm 2 setting some intermediate pricep2 is to set a price p1 that solves max p1[p1 (p2 + t + c) -(p1)^2-c(p2+t)]/2t, (d) (5 points) Given that for intermediate levels of p2, that the (partial) derivative of u1(p1; p2) with respect to p1 is (p2 + t + c)/2t, show that the best response for firm 1 for intermediate levels of p2,can be expressed as BR1(p2) = (p2 + t + c)/2, (e) (15 points) Draw a picture of the best responses of frms 1 and 2. Be careful to indicate in your picture what happens to BR1(p2) when p2 < c-t, and when p2 > 3t+c. [Hint: recall your answers to parts (a)and (b) above]. Draw the best response BR2(p1) on the same picture. (f) (10 points) Use algebra to find the Nash equilibrium.(g) (5 points) What is the equilibrium price when t = 0? Interpret youranswer. People sometimes say 'competition gets less fierce as productsbecome less similar and more differentiated'. How does this show upin our model?

Firm 1 has two options: enter a new market (E) or stay out (O). If Firm 1 decides to enter the market, Firm 2, the incumbent, can either fight (F) or accommodate (A). If Firm 2 chooses to fight, Firm 1 can choose to compete with Firm 2 by raising their advertising budget (C) or keep their planned budget the same (NC).The payoffs to Firm 1 and 2 if Firm 1 chooses O are 5 and 4. If Firm 2 chooses A, the payoffs are 3 and 0. The payoffs from E followed by F and NC are 1 and 2. The payoffs from E followed by F and C are x and 1. The parameter x is an integer and x > 1.What is the lowest integer value of x so that Firm 1 will definitely choose E in a subgame perfect equilibrium of this game?Write your answer as an integer (no decimal points).

QUESTION 2A merger of two price-making firms producing identical products will make the new firm's demand curve more elastic than the unmerged firms'. make the new firm's demand curve less elastic than the unmerged firms'. lower the 5-firm concentration ratio. increase the level of competition in the market.

Which of the following is not true regarding a firm in perfect competition?Select an answer and submit. For keyboard navigation, use the up/down arrow keys to select an answer.aThe firm's marginal revenue function is equal to the market price.bThe market demand and supply curves determine the market price.cThe demand curve for a single firm’s product is horizontal.dA single firm can influence the demand for its product by advertising.

In a perfectly competitive market, a single firm that sets its price a small amount above the market price will do which of the following?Select an answer and submit. For keyboard navigation, use the up/down arrow keys to select an answer.aMake lower profits than other firms, but the exact amount less depends on the elasticity of demand for the productbHave lower revenues but receive zero economic profitscNot sell any units at alldEarn profits higher than other firms as long as the other firms continued to charge the market priceUnanswered2 attempts left

Select all that applyWhich of the following are good opportunities for a company to pursue a low-cost provider strategy?Multiple select question.when rivals offer virtually identical productswhen price competition among competitors is vigorouswhen competitors go out of businesswhen consumers use a product offered by rival companies in the same waywhen there is a shortage of high-priced brands