Bertrand duopolists, Firm 1 and Firm 2, face inverse market demand $P = 50 - Q$ and both have marginal cost, $M C = \$ 20$ . The equilibrium output this market will be
A) 15
B) 20
C) 30
D) 40

Question

Quizplus · Accepted Answer

In a Bertrand duopoly, both firms compete on the basis of price. They will try to undercut each other to capture a larger market share. If one firm charges a higher price, it loses all its customers to the other firm because consumers will switch to the lower-priced product. Therefore, the equilibrium in this market will occur when both firms charge the same price, which is equal to their marginal cost.

In this case, the marginal cost for both firms is $20. Setting prices equal to marginal cost, we get:

$50 - Q = $20
Q = $30

So, the equilibrium output for each firm is Q/2 = $15.

Therefore, the total output for the market is 2*15 = 30. Therefore, the best choice is C) 30.

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 $P = 50 - Q$