Business, 20.02.2020 19:54 nmjohnson2025

The Bertrand model of differentiated product markets is routinely used to study interactions between vehicle manufacturers. Kleir and Linn (2011) present an overview of how economists have modeled automotive firms response to the corporate average fuel economy (CAFE) standard. This paper is saved in the problem set folder . Consider the overly simplistic version of the model in which cross-price elasticities are set to zero. Prior to the introduction of the CAFE standard, the firms profit maximization problem is given by: max Pj Show how the first order conditions for profit maximization under the maintained assump- tions can be expressed as: (pj - cj) 1 P j Where e is the own price elasticity.

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