The fudge makers compete in a Bertrand market structure with differentiated products. The demand curve for Fudge Factory is given by where p_F is the price for fudge at Fudge Factory and p_C is the price at Chocolate Corner. The demand curve for Chocolate Corner is given by Fudge Factory's cost is C_F = 5q_F and Chocolate Corner's cost is C_C = 5q_C. Use calculus for the following.
a. Identify Fudge Factory's profit function and its reaction function.
b. Identify Chocolate Corner's profit function and its reaction function.
c. Identify the equilibrium prices at the two fudge makers.

Question

The fudge makers compete in a Bertrand market structure with differentiated products. The demand curve for Fudge Factory is given by

where p_F is the price for fudge at Fudge Factory and p_C is the price at Chocolate Corner. The demand curve for Chocolate Corner is given by

Fudge Factory's cost is C_F = 5q_F and Chocolate Corner's cost is C_C = 5q_C. Use calculus for the following.
a. Identify Fudge Factory's profit function and its reaction function.
b. Identify Chocolate Corner's profit function and its reaction function.
c. Identify the equilibrium prices at the two fudge makers.

Quizplus · Accepted Answer

The Answer of The fudge makers compete in a Bertrand market structure with differentiated products. The demand curve for Fudge Factory is given by where p_F is the price for fudge at Fudge Factory and p_C is the price at Chocolate Corner. The demand curve for Chocolate Corner is given by Fudge Factory's cost is C_F = 5q_F and Chocolate Corner's cost is C_C = 5q_C. Use calculus for the following. a. Identify Fudge Factory's profit function and its reaction function. b. Identify Chocolate Corner's profit function and its reaction function. c. Identify the equilibrium prices at the two fudge makers.

The Fudge Makers Compete in a Bertrand Market Structure with Differentiated