3e) Suppose Joe has the opportunity to invest and lower his costs as follows:
C*(Qjoe) = 4 Qjoe
If Joe invests in this new technology and Sarah is stuck with her current costs
(constant marginal cost of $8), what would the new Bertrand-Nash Equilibrium be?
(3f) How much does each supplier earn under the Bertrand-Nash Equilibrium in (2e)
given that the investment cost for Joe is $500 ? Assuming that Sarah is stuck with her
current costs, what is the most that Joe would have been willing to spend for the new
technology?
(3g) Suppose Sarah has the same opportunity to invest in the lower cost technology
(at $500). If both Joe and Sarah make the investment and lower their marginal costs
to $4, what is the new Bertrand-Nash Equilibrium?
(3h) How much does each supplier earn under the Bertrand-Nash Equilibrium in (2g)
(accounting for the investment cost)? Are payoffs lower or higher in this equilibrium
than in the other two Bertrand-Nash equilibria (considered above)?
1 answer