For the Bertrand Model: 2 firms Demand functions: QA = 140 – 2PA + PB Cost...

For the Bertrand Model: 2 firms Demand functions: QA = 140 – 2PA + PB Cost Structure: AC = MC = 20

Calculate PA, QA and Profits for firm A.

Expert Solution

In the Bertrand model of price competition firms set their prices equal to their Marginal Cost of Production.

Because if you price your product higher than your marginal cost your competition has the incentive to undercut you and get all the sales. So Bertrand competition always leads to the perfect competition outputs and prices.

So

P_A=P_B=MC=20

Q_A=140-2P_A+P_B

=140-2x20+20 = 140-40+20 =120

Profit will be equal to

PxQ-QxAC

120x20 - 120x20 =0

Rahul Sunny answered 2 years ago

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