Assume that there are two gas stations in Ithaca, which provide an identical quality of gas, and do not differ in any meaningful way. Let the demand function for gas is Q = 100 30P , and assume the marginal cost of producing a gallon of gas is C = 2.

a) What is the demand function for firm 1?

b) What is firm 1's best response function?

c) What is the Nash Equilibrium in this market?

d) Using what we know about firm behavior in Bertrand competition, what would the Nash equilibrium be if firm 1 had a marginal cost of C₁=2 and firm 2 had a marginal cost of C₂=1.90?