Suppose the market demand curve for a Bertrand duopoly is downward sloping. What happens to the Nash equilibrium price and market quantity if the constant marginal cost declines?
A) Price and quantity decline.
B) Price increases and quantity declines.
C) Price decreases and quantity increases.
D) Price and quantity increase.

Question

Quizplus · Accepted Answer

With a downward sloping demand curve in a Bertrand duopoly, a decrease in marginal cost will lead to a decrease in price as firms will compete to capture more market share. This will result in an increase in market quantity as consumers respond to the lower price. Therefore, the Nash equilibrium price will decrease and the market quantity will increase.

Suppose the Market Demand Curve for a Bertrand Duopoly Is