00:01
So here we need to talk about bertrand competition, which to me, i think it's the undercutting game, right? it's this idea that people say, look, suppose one firm says, i want to make a profit, i'm going to charge $30.
00:13
The other firm says, aha, if i charge 29, i can undercut them and steal the entire market for themselves.
00:19
So the other firm goes to charges 28 to undercut and steal the entire market for itself, 27, 26, 25, so on and so forth, all the way down to 20.
00:28
At which point neither firm can cut anymore because if they go below 20, they'll be making a loss.
00:37
And zero and losing the market entirely is better than making a loss.
00:41
So here they're going to undercut each other down to marginal cost is equal to 20, right? so the equilibrium you get in bertrand competition is to set, well, price is equal to marginal cost, right? that's the price they're going to set.
01:03
Because if any firm tries to set a price above 20, they can be undercut by the other firm.
01:10
So we get 20 is equal to 260 minus 2q, 240 is equal to 2q, q is equal to 120, right? so we get a very low price and quantity, and a very high quantity, right? so if my demand curve looks something like this, marginal cost is down here at 20, and we get 120 like that.
01:38
But for the monopoly situation, we need to think about marginal revenue, right? there's no undercutting in monopoly.
01:45
It's only one firm.
01:47
So here, the firm is going to jack up the price by restricting the quantity, right? revenue is price times quantity, sub in the demand curve, 260 minus 2q times q...