The Nash Equilibrium in a Bertrand Game of Price Setting

question 14

Multiple Choice

The Nash equilibrium in a Bertrand game of price setting where all firms have different marginal cost is:

• A)efficient because all mutually beneficial transactions will occur.
• B)efficient because of the free entry assumption.
• C)inefficient because some mutually beneficial transactions will be foregone.
• D)inefficient because of the uncertainties inherent in the game.

---

Definitions:

Inferior Good

A type of good for which demand decreases as the income of the consumer increases, and vice versa.

Optimal Consumption

The combination of goods and services that provides the highest level of satisfaction to an individual, given their income and the prices of those goods and services.

Prices Constant

An assumption in economic analysis that prices remain unchanged over a specific period, allowing for the examination of other variables' effects without price fluctuations.

Diminishing Marginal Rate

The principle that as the quantidade of a variable input increases, with all other inputs fixed, a point will be reached where the additions to output will begin to decrease.