1. Assume two firms are competing in a Bertrand duopoly and that their products are differentiated. The firms face the following demand functions and marginal cost function:

Demand for firm 1:_!=1005_! +3_"

Demand for firm 2:_"=1005_" +3_!

Marginal Cost: MC = $10

a) What are the reaction functions for each firm?

b) What price will each firm set in Nash Equilibrium? Note that in this market firms will not charge fractions of pennies, but instead round up to the nearest cent.

c) What quantity will each firm produce in Nash Equilibrium? Note that in this market a firm will not produce a fraction of a unit, but instead will round to the nearest whole unit.

d) What profit will each firm make in Nash Equilibrium?