Bertrand duopolists, Firm 1 and Firm 2, face inverse market demand $P = 50 - Q$. Both have marginal cost, $M C = \$ 20$. The equilibrium price in the market will be:
A) $\$ 10$
B) $\$ 20$
C) $\$ 30$
D) $\$ 40$

Question

Quizplus · Accepted Answer

In a Bertrand duopoly with identical products and marginal costs, firms compete on price. The equilibrium occurs where price equals marginal cost if the products are perfect substitutes, as no firm can profitably undercut the other without making a loss. Therefore, the equilibrium price is $20, matching the marginal cost.

Bertrand Duopolists, Firm 1 and Firm 2, Face Inverse Market P=50−QP = 50 - QP=50−Q

Bertrand Duopolists, Firm 1 and Firm 2, Face Inverse Market $P = 50 - Q$