Consider now a Bertrand competition environment with one good and two firms, Firm 1 and Firm 2. The (pure) strategy space of Firm 1 is S₁ = [0,5], and the strategy s₁ of Firm 1 corresponds to the price they charge for the good. Similarly, the (pure) strategy space of Firm 2 is S₂ = [0,5], and the strategy s2 of Firm 2 corresponds to the price they charge for the good. If Firm 1 were to choose price S₁ and Firm 2 were to choose price s2, then the demand Firm 1 would face is given by D1 (81, 82) = if 81 < 82, 1 if 8₁ = 82, if 81 82, the demand Firm 2 would face is given by D2 (81, 82) = 1 12 0 the utility of Firm 1 would be their profit, u₁ (S1, S2) if s2 < $1, if 82 81, = if s2 > S1, = - (81 — 1)D1(81, 82), and the utility of Firm 2 would be their profit, u2(81, 82) = (82 − 1)D2(81, 82). (The marginal cost of production for both firms is 1.) - (c) Find the pure-strategy Nash equilibria of this game. Consider now an altered version of the Bertrand competition environment above in which the (pure) strategy space of Firm 1 is S₁ {0, 1, 2, 3, 4, 5}, the (pure) strategy space of Firm 2 is S₂ = {0, 1, 2, 3, 4, 5}, and otherwise the game is the same as the Bertrand competition environment above. = (d) Find the pure-strategy Nash equilibria of this game.

Suppose the inverse market demand for manufactures is P(Q) = A – Q, where P and Q denote price and total goods produced and the parameter A denotes the size of the domestic market. Suppose any firm has a cost function, c(q) = cq, where A > c. Suppose there are two firm in the market which produce q1 and q2, where Q = q1 + q 2                                                                                                                                                    a. Solve for the Cournot equilibrium levels of output (Q*), price (P*) and markups.                                                                                       b. What is the impact of an increase in market size, A, on Q*, P* and markups when there are two firms? Provide some intuition for these predictions.                                                                                                                                                                                                   c.…

Suppose that Flashfry and Warmbreeze are the only two firms in a hypothetical market that produce and sell air fryers. The following payoff matrix gives profit scenarios for each company (in millions of dollars), depending on whether it chooses to set a high or low price for fryers.   Warmbreeze Pricing High Low Flashfry Pricing High 11, 11 2, 15 Low 15, 2 8, 8   For example, the lower-left cell shows that if Flashfry prices low and Warmbreeze prices high, Flashfry will earn a profit of $15 million, and Warmbreeze will earn a profit of $2 million. Assume this is a simultaneous game and that Flashfry and Warmbreeze are both profit-maximizing firms. If Flashfry prices high, Warmbreeze will make more profit if it chooses a    price, and if Flashfry prices low, Warmbreeze will make more profit if it chooses a    price.   If Warmbreeze prices high, Flashfry will make more profit if it chooses a    price, and if Warmbreeze prices low, Flashfry will make more profit if…

Q8