Differentiated Demand - Price Competition
Two firms compete via price competition in a market with differentiated products. The demand for Firm 1's good is Q1 = 600-4P1 + 3P2, while the demand for Firm 2's good is Q2 = 200-2P2 + P1. Firm 1 has costs C1(Q1) = 10Q1, while Firm 2 has costs C2(Q2) = 2(Q2)2.
(a) Solve for the best response functions for each rm.
(b) Solve for the Nash equilibrium of this game.