Scenario 12.2:
Suppose a stream is discovered whose water has remarkable healing powers. You decide to bottle the liquid and sell it. The market demand curve is linear and is given as follows:
P = 30 - Q
The marginal cost to produce this new drink is $3.
-Refer to Scenario 12.2. What will be the price of this new drink in the long run if the industry is a Bertrand duopoly?
A) $3
B) $9
C) $12
D) $13.50
E) none of the above

Question

Quizplus · Accepted Answer

In a Bertrand duopoly, firms compete on price, and the outcome tends to drive the price down to the level of marginal cost if the products are homogeneous. Since the marginal cost is $3, the price in the long run would be $3.

Scenario 12.2: Suppose a Stream Is Discovered Whose Water Has Remarkable Healing