DSE2010 (Ques#58, Option A)

Posted by vikram on Jun 07, 2012; 7:35am
URL: http://discussion-forum.276.s1.nabble.com/DSE2010-Ques-58-Option-A-tp7577541.html

A Bertrand duopoly with 2 firms producing homogeneous good and set prices p1 and p2 respectively. p1 and p2 can only be positive integers. If p1<p2, firm 1 sells 5-p1 and firm 2 sells nothing and if p1>p2, firm 2 sells 5-p2 and firm 1 sells nothing. If p1=p2, each firm sells (5-p1)/2. Avg cost of firm 1 = 5/2 and avg cost of firm 2 = 3/2. In equilibrium

(a) p1=p2=2
(b) p1=p2=3
(c) p1=3 and p2=2
(d) p1=3 and p2=2 or 3

How can the answer be (d) to this question? Shouldn't prices be equal in equilibrium?