Consider the case of exogenous differentiation in a Bertrand Model. There are two firms (1 and 2) with marginal cost equal to zero, and the following demands: Q1 = 1 – p1 + c p2, and Q2 = 1 + c p1 – p2, where c is a positive constant.
-Write the equation of the profit function for every firm.
-Find the equation of the best response function of every firm
-Find the Bertrand-Nash equilibrium.