Consider a Bertrand duopoly with two firms

Question 1 [8 points] Consider a Bertrand duopoly with two firms 1,2 who sell the same good that has demand curve Q = 16 − p if p < 16 and Q = 0 if p ≥ 16. Both firms have same constant unit cost 4. Firms 1,2 set prices p1, p2. If they set different prices, the firm which sets the minimum price receives the demand at that price while its rival receives zero demand. If both firms set the same price, they equally split the demand at that price. (a) [4 points] Fix p2 = 3. Draw the profit of firm 1 as function of p1 and find all best responses of firm 1 to p2 = 3. (b) [4 points] Fix p1 = 7. Draw the profit of firm 2 as function of p2 and find all best responses of firm 2 to p1 = 7 https://www.studyhelpus.com/Questions & Answers/consider-a-bertrand-duopoly-with-two-firms/