1. Bertrand model with differentiated goods Firm A and B sell differentiated products and compete in prices. The demand for Firm A and B are respectively:

qA = 120-3pA+2pB;

qB = 120-3pB +2pA:

The marginal cost of production is 5 for each firm.

1.(a)Compute the Bertrand equilibrium.

2.(b)Suppose Firm Ai's product becomes more popular because of a successful advertisement campaign. Now the system of demand becomes:

qA = 150-3pA+2pB;

qB = 120-3pB +2pA:

Compute the new Bertrand equilibrium. Compare with that in part (a), and explain using a reaction-function diagram.

3.(c)Does Firm B benefit from Firm A's positive demand shock? Why?