Author Question: In the Bertrand model with homogeneous products, A) the firm that sets the lower price will ... (Read 57 times)

amal · **on:** Jul 1, 2018

In the Bertrand model with homogeneous products,

A) the firm that sets the lower price will capture all of the market.
B) the Nash equilibrium is the competitive outcome.
C) both firms set price equal to marginal cost.
D) all of the above
E) the outcome is inconclusive.

Question 2

Marge's Beauty Salon sells shampoo and conditioner. Marge has two types of customers. Their willingness-to-pay for shampoo and conditioner are given in the table below.

If Marge bundles the shampoo and conditioner, could she increase revenue? Shampoo Conditioner Type I 8 5 Type II 6 8

Loise Hard · **Reply #1 on:** Jul 1, 2018

Answer to Question 1

D

Answer to Question 2

If Marge bundles the products together and sells the bundle for 13, each of her customers will be willing to buy the bundle. Without bundling, Marge would need to sell the shampoo for 6 and the conditioner for 5 in order to sell each customer both items. Thus, revenue from both items is 11 for each customer. Bundling increases Marge's revenues by 2 per customer.