Reference no: EM131499057

Two firms, Alpha Vineyard and Beta Winery, produce and sell wine. The demand for Alpha's wine is given by the equation, QA = 200 - PA + PB

In this equation, the price of Alpha's wine is PA per bottle, and the price of Beta's wine is PB per bottle. Alpha Vineyard has a marginal cost of MC A = $20 per bottle, and a fixed cost of FC A = $6000. The demand for Beta's wine is given by the equation,  QB = 9000 - 100PB + 40PA.

Beta Winery has a marginal cost of MC B = $10 per bottle, and a fixed cost of FC B = $10,000. The two firms compete by simultaneously selecting prices.

Question 1: Are the bottles of wine produced by Alpha Vineyard and Beta Winery, homogeneous products or heterogeneous products? Your answer must reference the two firms' demand functions.

Question 2: Find Alpha Vineyard's best-response function.

Question 3: Find Beta Winery's best-response function

Question 4: In equilibrium, what price does each firm charge for a bottle of wine? How many bottles of wine does each firm sell? What is each firm's profit? 

Question 5: Which firm has the greater market power? Explain.

Question 6: How would the equilibrium that you found in question 4 change if Beta Winery's fixed cost increased to FC B = $100,000?