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

Access More Questions

In a Bertrand price-competition game with asymmetric constant marginal costs, Firm 1 has MC1 = $10 and Firm 2 has MC2 = $15. Goods are perfectly homogeneous. Assuming prices can be quoted in smallest monetary increments (e.g. cents), what is the Nash equilibrium market price and market allocation?

Both firms set price at $15 and split market demand equally Firm 1 sets price at $10 to maximize market volume, while Firm 2 exits Firm 1 sets price just below $15 (e.g., $14.99) and captures the entire market Firm 1 sets price at its unconstrained monopoly price even if it exceeds $15

Correct Answer:

Firm 1 sets price just below $15 (e.g., $14.99) and captures the entire market

Access more questions from this quiz

Continue to H3 Economics Practice Questions - Singapore GCE Exam - H3 Economics Exam for more practice questions and the full quiz experience.

Access More Questions