Suppose that firm 1 and firm 2 operate under conditions of constant average and marginal costs: firm 1's marginal cost is c1 = 10, and firm 2's marginal cost, c2 = 8. Market demand: Q = 500 20P

(a) Suppose the firms practice Bertrand competition, that is, setting prices for their identical products simultaneously. Compute the Nash equilibrium prices. (Assume that if the two firms charge the same price, then the firm with lower marginal cost makes all the sales.)

(b) Compute firms' outputs and profits in the Nash equilibria.

(c) Redo Question (a) and (b) under Cournot competition, that is, the two firms choose quantities for their identical products simultaneously.