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Calculate profit maximizing price for coke

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Reference no: EM132446002

Problem:

P* = MC/1+E

P + P/E = MC

P - MC = -P/E

(P - MC)/P = -1/E

Coke and Pepsi - Bertrand with differentiation model

Profit = (Price - Cost)Q  For cost use Marginal Cost, for Price use Pc or Pp as applicable, and for Q:

Qc = 63.42 - 3.98Pc + 2.25Pp

Qp = 49.52 - 5.48Pp + 1.4Pc

MCc = 4.96, MCp = 3.96

1. Calculate Profit Maximizing price for Coke and for Pepsi Using those prices, MC, and the optimal pricing formula above, calculate the price elasticity of demand for each at profit max.

2. Is one of these the market leader?  Why/how do you know?

3. At these prices would these companies be earning economic profits?  Why/why not (use the data to answer this question).

Reference no: EM132446002

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