The Nash equilibrium in Bertrand competition with identical goods:
occurs when each firm sets price equal to marginal cost.
Consider two firms engaged in Bertrand competition with differentiated goods and zero
marginal costs.
Firm A’s demand curve: qA = 120 – 3PA + 2PB
Firm B’s demand curve: qB = 120 – 3PB + 2PA
In a Nash equilibrium, what is each firm’s price?
PA = $30; PB = $30
As firms enter a monopolistically competitive industry, the existing firms’ demand curves
will:
shift inward and become more elastic.
Which of the following are model assumptions of Bertrand competition with identical goods?
I. The firms compete by choosing the quantity of output produced.
II. The firms agree to coordinate their output and pricing decisions to act like a monopolist.
III. The firms compete by choosing the price of their product.
III only
Which of the following statements is TRUE?
I. Oligopoly is a form of imperfect competition.
II. Oligopoly firms produce only differentiated products.
III. Unlike perfectly competitive markets, oligopoly markets have only a small number of
firms.
I and III
