-Refer to Figure 8.5, which depicts two firms engaged in Bertrand price competition in markets X and Y. The two firms have the same marginal cost of production in each market, although marginal cost is not is not the same in both markets. The reaction functions of firms 1 and 2 in market X are ABC and DBE, respectively. The reaction functions of firms 1 and 2 in market Y are given by the line segments FGH and IGJ, respectively. The marginal cost of production of both firms in market X is:

Question

Quizplus · Accepted Answer

In Bertrand competition, firms set prices equal to marginal cost in equilibrium. The intersection of the reaction functions in market X, which is point B, indicates the equilibrium price, equal to the marginal cost. Point A represents the marginal cost in market X.