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5. There are just two firms, 1 and 2, in the widget industry. They each produce widgets at a fixed cost of $1000 per month
5. There are just two firms, 1 and 2, in the widget industry. They each produce widgets at a fixed cost of $1000 per month and have no variable costs. The respective monthly demand curves they face are 91 = 120 - 2p1 + P2 92 = 120 - 2p2 + P1 The firms engage in Bertrand competition. (a) Find the Bertrand equilibrium in the simultaneous move game where the firms set their prices at the same time. Find the firms' best response functions and draw them in a clearly labeled diagram. Then find the equilibrium values of p1, p2 and label this point B in your diagram. Find each firm's profit levels. (b) Now answer question (a) for the sequential game in which firm 1 chooses its price first. Find the equilibrium values of p1, p2 and label this point S in your diagram. Find each firm's profit levels. Explain the relationship between the profit levels in this case as compared to the profits seen in part (a)
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