A new firm enters a market which is initially serviced by a Bertrand duopoly charging a price of $20. What will the new price be should the three firms coexist after the entry?
A) $25
B) $20
C) $15
D) None of the answers is correct.

Question

Quizplus · Accepted Answer

The new firm will enter the market and charge a price of $20, which is the same as the price charged by the incumbent firms. This is because the new firm will not be able to charge a higher price than the incumbent firms, as customers will simply buy from the incumbent firms instead. The new firm will also not be able to charge a lower price than the incumbent firms, as this would not be profitable. Therefore, the new firm will charge the same price as the incumbent firms, and the market price will remain at $20.

A New Firm Enters a Market Which Is Initially Serviced