Which of the following is true of the Bertrand model of a duopoly?
A) Each firm matches the price increases by the other firm.
B) The firm that sets the lower price claims the entire market.
C) The total output supplied by the firms determines the market price.
D) Firms compete on multiple dimensions like quantity, price, and advertising.
E) The demand curve facing an individual firm is kinked at the market price.

Question

Quizplus · Accepted Answer

In the Bertrand model of a duopoly, each firm assumes that the other firm will keep its output fixed and chooses a price slightly lower than the other firm's price. This results in a price war and ultimately the firms end up charging a price equal to their marginal cost. The firm that sets the lower price will claim the entire market.

Which of the Following Is True of the Bertrand Model