The followings are under BETRAND price competition market.

Given:

Firm1 Demand: q(1) = a - b*p(1) + d*p(2);

Firm2 Demand: q(2) = a - b*p(2) + d*p(1);

Cost1: c(q1) = (1/2) * q(1)^2;

Cost2: c(q2) = (1/2) * q(2)^2;

Solve and Explain the followings:

(i): From the demands functions above, will the products from both firms considered to be substitution? If so, why?

(ii): We now assume that both firms are competing in the prices that they charge, what are the reaction functions for them?

(iii): Show steps by solving the Bertrand-Nash equilibrium.