H3 Economics Practice Questions - Singapore GCE Exam - H3 Economics Exam

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Two firms produce identical homogeneous goods and compete simultaneously on price (Bertrand duopoly). Both firms have constant marginal cost MC = $15 per unit. Which outcome characterizes the unique Nash equilibrium of this market?

Both firms set price equal to the monopoly price ($30) and split monopoly profits equally Both firms set price equal to marginal cost ($15) and earn zero economic profit The firms set different prices, allowing the firm with higher capacity to capture the entire market Neither firm can achieve equilibrium because price undercutting leads to non-convergent price cycles

Correct Answer:

Both firms set price equal to marginal cost ($15) and earn zero economic profit

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