The paradox of the Bertrand Oligopoly with only 2-firms the equilibrium outcome is the same as a) monopolistic competition. b) monopoly c) tacit collusion d) perfect competition e) Cournot oligopoly<\/p>\n\n\n\n
The correct answer and explanation is:<\/strong><\/mark><\/p>\n\n\n\n Correct Answer: d) perfect competition<\/strong><\/p>\n\n\n\n The Bertrand paradox<\/strong> arises in the context of Bertrand oligopoly<\/strong>, where two or more firms compete by setting prices<\/strong> rather than quantities (as in Cournot competition). In the classic Bertrand model, the firms sell homogeneous products<\/strong>, have identical constant marginal costs<\/strong>, and simultaneously choose prices<\/strong>.<\/p>\n\n\n\n Here\u2019s the surprising outcome: Even though there are only two firms<\/strong>, the Nash equilibrium<\/strong> of the game is that both firms set price equal to marginal cost<\/strong>\u2014the same outcome as in perfect competition<\/strong>. This occurs because if one firm sets a higher price than the other, consumers will buy exclusively from the lower-priced firm. Hence, each firm has a strong incentive to undercut<\/strong> its rival by a small amount to capture the whole market. This price-cutting continues until price equals marginal cost<\/strong>, at which point no firm can profitably lower the price further.<\/p>\n\n\n\n This is counterintuitive because we usually associate a market with only two firms as being imperfectly competitive<\/strong>, possibly resembling a duopoly<\/strong> or a monopoly-like<\/strong> structure. However, the Bertrand model shows that price competition<\/strong> between just two firms can drive prices down to the perfectly competitive level if the assumptions hold.<\/p>\n\n\n\n Let\u2019s consider the other options:<\/p>\n\n\n\n Therefore, the Bertrand paradox shows that even with just two firms<\/strong>, intense price competition<\/strong> can yield an equilibrium identical to perfect competition<\/strong>: price = marginal cost<\/strong>, zero economic profit.<\/p>\n\n\n\n Answer: d) perfect competition<\/strong>.<\/p>\n","protected":false},"excerpt":{"rendered":" The paradox of the Bertrand Oligopoly with only 2-firms the equilibrium outcome is the same as a) monopolistic competition. b) monopoly c) tacit collusion d) perfect competition e) Cournot oligopoly The correct answer and explanation is: Correct Answer: d) perfect competition Explanation (300 words): The Bertrand paradox arises in the context of Bertrand oligopoly, where […]<\/p>\n","protected":false},"author":1,"featured_media":0,"comment_status":"open","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"footnotes":""},"categories":[1],"tags":[],"class_list":["post-27473","post","type-post","status-publish","format-standard","hentry","category-quiz-questions"],"_links":{"self":[{"href":"https:\/\/gaviki.com\/blog\/wp-json\/wp\/v2\/posts\/27473","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/gaviki.com\/blog\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/gaviki.com\/blog\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/gaviki.com\/blog\/wp-json\/wp\/v2\/users\/1"}],"replies":[{"embeddable":true,"href":"https:\/\/gaviki.com\/blog\/wp-json\/wp\/v2\/comments?post=27473"}],"version-history":[{"count":1,"href":"https:\/\/gaviki.com\/blog\/wp-json\/wp\/v2\/posts\/27473\/revisions"}],"predecessor-version":[{"id":27474,"href":"https:\/\/gaviki.com\/blog\/wp-json\/wp\/v2\/posts\/27473\/revisions\/27474"}],"wp:attachment":[{"href":"https:\/\/gaviki.com\/blog\/wp-json\/wp\/v2\/media?parent=27473"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/gaviki.com\/blog\/wp-json\/wp\/v2\/categories?post=27473"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/gaviki.com\/blog\/wp-json\/wp\/v2\/tags?post=27473"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}Explanation (300 words):<\/h3>\n\n\n\n
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