Sue and Jane own two local gas stations. They have identical constant marginal costs, but earn zero economic profits. Sue and Jane constitute:
A) a Sweezy oligopoly.
B) a Cournot oligopoly.
C) a Bertrand oligopoly.
D) None of the answers is correct.

Question

Quizplus · Accepted Answer

Sue and Jane constitute a Bertrand oligopoly because they have identical costs and are competing on price to win customers. In a Bertrand oligopoly, each firm sets a price and tries to undercut the other in order to capture a larger market share. This drives prices down to marginal cost and eliminates economic profits.

Sue and Jane Own Two Local Gas Stations