Bertrand-Edgeworth Model
In the absence of capacity constraints, if firms sell identical products, they will compete until p =mc. However, with capacity constraints this may not happen. Market demand = 100 units, two firms have mc = 0, but can only produce 70 units each. If A priced at 0, it would sell only 70 units, leaving B as the monopoly supplier of the 30 units, firm B would want to charge monopoly price. Thus they cannot price at marginal cost.