True/False/Explain. There are N symmetric firms competing in an industry producing identical hula hoops. All firms having the same marginal costs of production, c, and compete simultaneously. If N increases from 2 to 5, the market price for hula hoops decreases when firms compete either in quantities or prices.
a. True
b. False.
If firms compete in prices, as in Bertrand, the price will equal marginal cost, c, both when there are 2 or 5 competitors. That is, if the number of competitors increases from 2 to 5, the market price remains the same.
If firms compete simultaneously in quantities, as in Cournot, the market quantity increases with more firms. Thus, the market price falls.