[ECON 2350] - Final Exam Guide - Everything you need to know! (34 pages long)

• School: York University
• Department: Economics
• Course: ECON 2350
• Professor: Sadia Mariam Malik

Document Summary

Suppose that one firm bids for the consumers" business by quoting a price above marginal cost. Then the other firm can always make a profit by undercutting this price with a lower price. It follows that the only price that each firm cannot rationally expect to be undercut is a price equal to marginal cost. It is often observed that competitive bidding among firms that are unable to collude can result in prices that are much lower than can be achieved by other means. This phenomenon is simply an example of the logic of bertrand competition. In the models we have examined up until now the firms have operated independently. But if the firms collude so as to jointly determine their output, these models are not very reasonable. If collusion is possible, the firms would do better to choose the output that maximizes total industry profits and then divide up the profits among themselves.