Two firms compete in a market by selling imperfect substitutes (i.e., differentiated products).

05 (4 points] Q5 (4 marks). Two rms compete in a market by selling imperfect substitutes (i.e., differentiated products). The demand equations for each rm are given by the following equations: '11 = 50 'PI +102 92 Z 50 'P2 +191 a (2 marks). Suppose the marginal cost of each rm is $10 and both rms compete by prots of each rm. ----------- b (2 marks). Suppose rm l's marginal cost has increased to $20, but rm 2's marginal cost stays at $10. Calculate the Bertrand-Nash equilibrium price, quantity and prots of each rm. If both rms sell perfect substitutes, what would be the Bertrand-Nash equilibrium