15.4 Compute irm output, irm proit and market output.

Is total welfare maximised in the Nash equilibrium?

If not, suggest an outcome that would maximise total welfare, and compute the deadweight loss in the Nash equilibrium compared with your outcome.

Consider the following Bertrand game involving two firms producing differentiated products. Firms have no costs of production. Firm 1’s demand is q1 = 1 − p1 + bp2, where b > 0. A symmetric equation holds for firm 2’s demand.

a.

Solve for the Nash equilibrium of the simultaneous price-choice game.

b.

c.