(20 marks) Firm A and Firm B sell coffee and engage in Bertrand competition. They have a constant marginal cost equal to 10 and zero fixed costs. Total costs are therefore Ci(qi)=10qi for i=A,B. (a) (10 marks) Suppose that consumers perceive the two brands of coffee as perfect substitutes; demand for firm i=A,B is then equal to Qi(pi,pj)=40pi,0,240pi,ifpipjifpi=pj Describe what happens in equilibrium. Can firms make positive profits in equilibrium? (b) (10 marks) Now, assume that consumers consider the two products as differentiated: demand for firm A is QA(pA,pB)=402pA+pB and demand for firm B is QB(pB,pA)=402pB+pA. Compute best response functions and characterize an equilibrium for this setting. Can firms make positive profits in equilibrium? (20 marks) Firm A and Firm B sell coffee and engage in Bertrand competition. They have a constant marginal cost equal to 10 and zero fixed costs. Total costs are therefore Ci(qi)=10qi for i=A,B. (a) (10 marks) Suppose that consumers perceive the two brands of coffee as perfect substitutes; demand for firm i=A,B is then equal to Qi(pi,pj)=40pi,0,240pi,ifpipjifpi=pj Describe what happens in equilibrium. Can firms make positive profits in equilibrium? (b) (10 marks) Now, assume that consumers consider the two products as differentiated: demand for firm A is QA(pA,pB)=402pA+pB and demand for firm B is QB(pB,pA)=402pB+pA. Compute best response functions and characterize an equilibrium for this setting. Can firms make positive profits in equilibrium