In an identical-product Bertrand oligopoly, the market inverse demand curve is P = 100 - 0.5Q. Firm A's average cost and marginal cost are constant at $20; Firm B's average cost and marginal cost are constant at $10. What is the equilibrium price in this market?

Question

Quizplus · Accepted Answer

The equilibrium price is determined by the intersection of the market inverse demand curve and the marginal cost curve of the firm with the lowest marginal cost. In this case, Firm B has the lowest marginal cost of $10, so the equilibrium price will be determined by the intersection of the market inverse demand curve and Firm B's marginal cost curve. Substituting Firm B's marginal cost of $10 into the market inverse demand curve, we get:P = 100 - 0.5Q10 = 100 - 0.5QQ = 180Substituting Q = 180 back into the market inverse demand curve, we get:P = 100 - 0.5(180)P = $19.99Therefore, the equilibrium price in this market is $19.99.

In an Identical-Product Bertrand Oligopoly, the Market Inverse Demand Curve