Suppose that a particular market is served by two firms. The market demand curve is given by p = 100 - y. Each firm incurs a constant cost per unit of $20. The Bertrand solution to this duopoly problem is: A)p ^*= p ^*= 70. B)p ^*= p ^*= 50. C)p ^*= p ^*= 20. D)p ^*= p ^*= 40. 1 2 1 2 1 2 1 2

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In a Bertrand duopoly with identical products and constant marginal costs, firms will set prices equal to marginal cost. Here, the marginal cost is $20, so both firms will set p = 20.

Suppose That a Particular Market Is Served by Two Firms