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Exercise 4. [5 points] Two companies are selling software which are imperfect substitutes of each other. Let p1 and x1 denote the price and the quantity sold of software 1. Similarly, let p; and x2 denote the price and the quantity sold of software 2 respectively. Demand for x1 and x2 are respectively given by P1 P2 90+ x1 2 4 @=%+ 2 4 Each company has incurred xed cost for designing their software and writing the programs, but the cost of selling to an extra user is zero. Therefore each company will maximize its prots by choosing the price that maximizes its total revenue {which is same as total prot in this case) (i) (1 point) Write payoff functions for the two companies [note: these will be in terms of P1 andpg] (ii) (2 points) Derive the best response function for the two companies. (iii) (2 points) Suppose company 1 look in its price rst. Company 2 sets price after com- pany 1 has locked in its price. What price will company 1 choose to maximize its revenue