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Questions › DSE › DSE 2013 › Q7
1 markMicroeconomics › Monopolistic competition and oligopoly › Bertrand competitionModerateabout 2 min

DSE 2013 Question 7: Monopolistic competition and oligopoly

Two goods are imperfect substitutes with demands D1=a−p1+bp2D_1=a-p_1+bp_2D1​=a−p1​+bp2​ and D2=a−p2+bp1D_2=a-p_2+bp_1D2​=a−p2​+bp1​, where a>0a>0a>0, 0<b<10<b<10<b<1; each is produced at cost ccc per unit. Find the equilibrium prices when good 1 and good 2 are produced by two different monopolists.

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Two goods are imperfect substitutes with demands D₁=a-p₁+bp₂ and D₂=a-p₂+bp₁, where a>0, 0<b<1; each is produced at cost c per unit. Find the equilibrium prices when good 1 and good 2 are produced by two different monopolists. (A) p₁=p₂=(a+c)/(2-b) (B) p₁=p₂=(a+c)/(1-b) (C) p₁=(a+c)/(2-b), p₂=(a+c)/(1-b) (D) p₁=(a+c)/(1-b), p₂=(a+c)/(2-b)

Also written as: Two goods are imperfect substitutes with demands D_1=a-p_1+bp_2 and D_2=a-p_2+bp_1, where a>0, 0<b<1; each is produced at cost c per unit. Find the equilibrium prices when good 1 and good 2 are produced by two different monopolists.

Monopolistic competition and oligopoly has come up 104 times in 7 exams since 2004.

What this question tests

This question is on Bertrand competition, part of Monopolistic competition and oligopoly in Microeconomics.

Firms competing on price, and why identical firms price at marginal cost.

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