Two firms produce different goods. Firm 1 has a positive-sloped reaction function. This can be explained best by:
A) homogeneous product Cournot oligopoly.
B) homogeneous product Bertrand oligopoly.
C) heterogeneous product Bertrand oligopoly.
D) None of the answers is correct.

Question

Quizplus · Accepted Answer

In a heterogeneous product Bertrand oligopoly, firms compete on prices, and a positive-sloped reaction function indicates that Firm 1's optimal price increases as Firm 2's price increases, which is consistent with differentiated products.

Two Firms Produce Different Goods