Let there be two firms, 1 and 2. Each firm sells a product of with material quality Z-1 and each chooses its price, Pi and quality to be the product's advertising level consumers perceive product 1 to be of quality a and product 2 to be of quality 1. Consumers are indexed by v distributed continuously from zero to 1, where v, is consumer i's willingness to pay for quality Consumer i's net gain product 1 is va-Pi while consuming product 2 generates a net gain of v,-P2 There is no production cost; however, firm I incurs advertising cost of (a/2) a. Assume all N consumers always buy the product of either firm or firm 2, i.e, the market is always covered b. Derive the equilibrium values of p P2, and a c. Suppose firm 2 is permitted now to between 0 and 0.5. What level of adver- tising will it choose if it takes firm I's choice a as given?