Two firms produce and sell differentiated products that are substitutes for each other. Their demand curves are

Firm1: Q1 = 403P1 + P2

Firm2: Q2 = 403P2 + P1

Both firms have constant marginal costs of $3.40

Both firms set their own price and take theircompetitor's price as fixed. Use the Nash equilibrium concept to determine the equilibrium set of prices. Since the firms areidentical, they will set the same prices and produce the same quantities.

1.) In Equilibrium, what price will each firm charge and how many units will be produced?

2.) How much profit will each firm earn?