Consider a market with demand P(Q) = 60 3Q. Suppose that firms compete by setting prices in a Bertrand duopoly. Answer the following questions (i-iii) for each situation (a-b): i) What price would each firm want to set if they were the only firm in the market?

ii) Write out the reaction function for each firm (this should tell what price one firm should set for all prices that the other firm could set between 0 and ).

iii) Determine all Bertrand equilibria.

Assume the following:

firms can only set prices in full dollars.

if a firm is indifferent between more than one price, they always set the lowest of those prices.

(a) MC1 = 20 and MC2 = 20.

(b) MC1 = 20 and MC2 = 10.