Question

There are two firms in the industry. Let q1 and q2 be the two firms in an industry and Q= q1 + q2 be the total output. The inverse demand in the industry if P (Q)= 45 - Q. The cost function for each firm is C(qi) = 9qi.

Assume oligopolistic competition between the two firms is Bertrand. Which of the following options are true?

A. Each firm tries to maximize its profit while choosing its output while taking its rival's output choice as given.

B. Both of the above are true.

C. Each firm tries to maximize its profit while choosing its price while taking its rival's price to be given.

D. None of the above is true.

The equilibrium prices and output of Firm 1 and Firm 2, assuming that the consumers will split evenly between the two firms if the firms offer the same price, are :

A. 6,18

B. 9, 15

C. 9, 18

D. 4,5

Each firm's profit level is:

A. 9

B. 5

C. 0

D. 36

The consumer surplus is given by:

A. 0

B. 856

C. 36

D. 648

The market outcome under Bertrand competition is:

A. Perfectly identical to the competitive market outcome.

B. The equilibrium price is more but the equilibrium quantity is less than the competitive market.

C. The equilibrium price is less but the equilibrium quantity is more than the competitive market.

D. The equilibrium price and quantity are less than the competitive market equilibrium price and quantity.

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