Question

1. In a Bertrand model with identical firms and a non-differentiated product, price will increase in response to:

a-) an increase in the number of firms.

b-) a decrease in the number of firms.

c-) an increase in marginal cost.

d-) a decrease in marginal cost.

2. Which of the following is not a feature of the Cournot model?

a Group of answer choices

b In a Cournot equilibrium, neither firm can change its production and make more profit.

c In a Cournot equilibrium the firms are working together to make the most profit possible.

d As the number of firms in the market increases the Cournot equilibrium price approaches the perfectly competitive price.

e If the number of the firms in the market decreases to one, the Cournot equi- librium price is just monopoly price.

f more than one of the above is incorrect

3. Assuming a homogeneous product, the Bertrand equilibrium price is

a independent of the number of firms

b independent of the firm's marginal costs

c equal to the Cournot equilibrium price

d equal to the monopoly price

Answer 1

1.

In a Bertrand Competition, with non-differentiated product, the Nash Equilibrium occurs when:

P1 = P2 = ...... = Pn = Marginal Cost

where n = # of firms

So, Price increases in response in increase in the Marginal Cost.

Option c. is correct

2.

In cournot model, every firm at nash equilibrium produces optmial quantity of goods and has no incentive to deviate. If deviation occurs that the profits can be increased. So, option b. is a feature of Cournot Model

As n tends to infinity, price = MC in a Cournot competition. So, option d. is also a feature of Cournot Competition.

Cournot Game is a simultaneous move game. Firms do not cooperate and play their individual strategies. So, option c. is not a feature of Cournot Competition

Hence, option c. is the correct choice

3.

In market with homogenous product, the Bertrand equilibrium price = Marginal Cost. So, it is independent of the number of firms. Option a. is correct

Bertrand equilibrium price is less than the Cournot price and the monopoly price. So, option c and d are incorrect

Option a. is the correct choice

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