suppose two good are produce by one firm

Consider a market for two differentiated products. Demand for good 1 is given by 4 2 D1(P1,P2) = 130 'Pl + '132 3 3 and demand for product 2 is 4 2 D2(P1:P2) I 130 gpz + 3P1 where 131 and 192 are the prices of good 1 and 2. The cost function for both products and any rm producing them is C (q) = 15q. (a) [8 marks] Are the two goods complements or substitutes? Briey explain why. What is the diversion ratio of this demand schedule and what does this number mean? (b) [10 marks] Suppose the two goods are produced by one rm. What are the optimal prices for the two goods? What is total prot for the rm? [Hint: Make sure the demand of each good enters the monopolist's prot functionl]