Consider two price-setting oligopolies supplying consumers in a certain...
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Consider two price-setting oligopolies supplying consumers in a certain region of a country. Firm 1 employs many of the people living there and the local government subsidizes its operations. In all other respects, the firms are identical (they have the same constant marginal cost), MC = 4, and produce the same good. The demand function for Firm 1 is q = 600 50p1 20p2 and for Firm 2 is 92 = 600 - 50p2 - 20p1, where p, is Firm 1's price and pz is Firm 2's price. 4.1. What are the Nash-Bertrand equilibrium prices and quantities without the subsidy? (20 marks) 4.2. What are the Nash-Bertrand equilibrium prices and quantities, if Firm 1 receives a per-unit subsidy of S = 1? Compare the two equilibria. (10 marks)
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