(25) Suppose that two firms compete in a market with identical goods. They compete in price (Bertrand): because goods are identical, whichever firm chooses the lowest price gets the entire market. If a firm sells at a price Pi they sell at a quantity set by the demand function Q = 4 Pi . Firms face a marginal cost of 2 per unit produced.

(a) Write down a strategy for each player.

(b) Solve for the Nash equilibrium.

For the next two questions, suppose that now firms compete in quantity. Quantity is determined by the inverse demand function P = 4Q1Q2 and continue facing a marginal cost of 2 per unit produced.

(c) Write down a strategy for each player.

(d) Solve for the Nash equilibrium