Firm 1 and 2 each produce the same product and face a market demand curve Q = 5000 200P . They have the same marginal cost c = 10 and no fixed costs.

1. What is the Bertrand-Nash equilibrium outcome? 2. What is total quantity sold on the market and the profits of the two firms?

3. Is this outcome efficient?

Assume now that Firm 1 gets (exogenously and at zero cost) a new production technology that makes its unit cost of production drop to c1 = 6, while Firm 2 still faces c2 = 10.

1. What is the Bertrand-Nash equilibrium outcome? 2. What is total quantity sold on the market and the profits of the two firms?

3. Is this outcome efficient?