Two firms produce the same product and face a market demand described by Q = 1,000 -20p. Firm 1 has a unit cost of production equal to $10 whereas firm 2 have a higher unit cost of production equal to $20.
a- Find the Bertrand-Nash equilibrium price and profit of each firm.
b- Is this outcome efficient?
c- Suppose firm 2’s marginal cost increases to $40 and firm 1’s cost remains unchanged. What is the Bertrand-Nash equilibrium outcome?