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1. In the Bertrand model with product differentiation, suppose the two Bertrand Firms face the following symmetric demand curves: q, = a - bip, +

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1. In the Bertrand model with product differentiation, suppose the two Bertrand Firms face the following symmetric demand curves: q, = a - bip, + bap2 and q2 = a - bipz + bap,. Assume b1 > b2 and q1, q2 > 0. The cost function is C(q) = cq for each firm (or equivalently, MC = AC = C). a) Solve for each firm's best response function. b) Solve the Nash Equilibrium price and quantity

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