Economics Paper in Price Strategy

756 WordsSep 10, 20154 Pages
Managerial Economics – BM (Term I - 2015) Problem Set 3-B Problems on price competition (Homogeneous products markets and differentiated products markets) 1. Alpha Co. and Beta Co. are two firms supplying removable storage devices that are homogenous in quality, and for both of them the cost of producing each piece of the devise is $6. The daily market demand is given by P = 10 – 0.0001Q, where prices are in $ per piece and quantities are number of pieces of the devise. Find the equilibrium prices when the firms compete in prices a la Bertrand. What should be the collusive price? Is it possible to sustain the collusive outcome? How and under what conditions can this be sustained? 2. In Taco Island, only a French winery and an Australian winery supplies red wine. The Taco residents have a refined taste for wine and don’t perceive the French and Australian wine to be perfect substitutes. However, they perceive the two kinds of wines as close substitutes. The daily demand for French wine in Taco Island is given by QF = 1020 – 6PF + 2PA and that for Australian wine is QA = 800 – 5PA + 2PF. The prices are in Taco dollars (TD) per liter and the quantities are in litres. The cost of producing a litre of red wine is TD90 for the French winery and TD20 for the Australian winery. Find the equilibrium prices. How much of each kind of wine is consumed in Taco Island per day? 3. In the market for energy drinks there are two competing brands – Apricot and Banana, owned by Firm A and Firm B respectively. Consumers’ perceive them as close substitutes. The annual demand for Apricot is: QA = 168 – 2PA + PB. PA and PB are prices of Apricot and Banana respectively. The annual demand for Banana is: QB = 168 + PA – 2PB. The annual cost function of the firm A is given as CA = 500+ 11QA and that of Firm B is given as CB = 16QB. Prices and cost are
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