Bertrand duopolists,Firm 1 and Firm 2,face inverse market demand Both have marginal cost, The equilibrium price in the market will be

Question

Bertrand duopolists,Firm 1 and Firm 2,face inverse market demand  Both have marginal cost,  The equilibrium price in the market will be

Quizplus · Accepted Answer

In a Bertrand duopoly, firms compete on price and are assumed to have identical products. If Firm 1 sets a price above $20, then Firm 2 can set a slightly lower price (say, $19.99) and capture the entire market. Similarly, if Firm 2 sets a price above $20, then Firm 1 can undercut them and gain the entire market. Therefore, the only rational option for both firms is to set a price of $20, which will result in each firm earning a profit of $2.50.

Bertrand Duopolists,Firm 1 and Firm 2,face Inverse Market Demand