Two firms that are Bertrand competitors are producing differentiated goods at a marginal cost of zero. The demand curves facing each firm are as follows:
q₁ = 72 - 6P₁ + 4P₂
q₂ = 72 - 6P₂ + 4P₁
a. Suppose that Firm 2 sets P₂ = $12. What price should Firm 1 set to maximize profit?
b. Suppose that Firm 2 sets P₂ = $3. What price should Firm 1 set to maximize profit?
c. In a Nash equilibrium, what is the price charged by each firm?

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The Answer of Two firms that are Bertrand competitors are producing differentiated goods at a marginal cost of zero. The demand curves facing each firm are as follows: q₁ = 72 - 6P₁ + 4P₂ q₂ = 72 - 6P₂ + 4P₁ a. Suppose that Firm 2 sets P₂ = $12. What price should Firm 1 set to maximize profit? b. Suppose that Firm 2 sets P₂ = $3. What price should Firm 1 set to maximize profit? c. In a Nash equilibrium, what is the price charged by each firm?

Two Firms That Are Bertrand Competitors Are Producing Differentiated Goods