| The equilibrium of the Bertrand model with differentiated goods is found by: |
| | solving for the intersection of the reaction curves in which each good\'s quantity is expressed as function of the other good\'s quantity. | | setting quantity demanded equal to quantity supplied for each good. | | solving for the intersection of the reaction curves in which each good\'s price is expressed as function of the other good\'s price. | | setting price equal to marginal cost for each good. | |
| The equilibrium of the Bertrand model with differentiated goods is found by: |
| | solving for the intersection of the reaction curves in which each good\'s quantity is expressed as function of the other good\'s quantity. | | setting quantity demanded equal to quantity supplied for each good. | | solving for the intersection of the reaction curves in which each good\'s price is expressed as function of the other good\'s price. | | setting price equal to marginal cost for each good. | |
The correct option is solving for the intersection of the reaction curves in which each good\'s price is expressed as function of the other good\'s price.
The reason is that P = MC is the equilibrium condition for perfectly competitive firm. QS and Qd are equated for a typical market competitive by nature. Reaction functions of firms in terms of quantity are equated in Cournot model. While Bertrad model uses reaction function expressed in terms of price.
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