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Questions › DSE › DSE 2017 › Q15
2 marks, −0.666666666666667Microeconomics › Monopolistic competition and oligopoly › Bertrand competitionModerateabout 3 min

DSE 2017 Question 15: Monopolistic competition and oligopoly

Two telecom firms 111 and 222 have paid sunk spectrum fees k1>0k_1>0k1​>0 and k2>0k_2>0k2​>0 with k1>k2k_1>k_2k1​>k2​. They produce an identical service at the same constant average cost c>0c>0c>0. If they engage in Bertrand competition, the Nash equilibrium prices (p1,p2)(p_1,p_2)(p1​,p2​) satisfy

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Two telecom firms 1 and 2 have paid sunk spectrum fees k₁>0 and k₂>0 with k₁>k₂. They produce an identical service at the same constant average cost c>0. If they engage in Bertrand competition, the Nash equilibrium prices (p₁,p₂) satisfy (A) p₁>p₂>c (B) p₁=p₂>c (C) p₁=p₂=c (D) are indeterminate

Also written as: Two telecom firms 1 and 2 have paid sunk spectrum fees k_1>0 and k_2>0 with k_1>k_2. They produce an identical service at the same constant average cost c>0. If they engage in Bertrand competition, the Nash equilibrium prices (p_1,p_2) satisfy

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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