Suppose Two Bertrand Firms Produce Similar but Not Identical Products

question 49

Essay

Suppose two Bertrand firms produce similar but not identical products. Their demand curves follow.
Firm A: q_A = 10 - 3P_A + P_B
Firm B: q_B = 10 - 3P_B + P_A
Assume that marginal cost is zero for both firms.
a. Graph each firm's reaction function and identify the Nash equilibrium.
b. How much output does each firm produce?

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