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Consider a market with only two firms. Demand on this market is given by D(p)= 90...

Consider a market with only two firms. Demand on this market is given by D(p)= 90 - 3p. Initially both firms have the same constant per-unit cost, specifically c1 = c2 = 20 .

(a) What is the Nash equilibrium in this market if firms behave as Bertrand competitors? How much does each firm produce, what price do the firms charge, and what are their profits?

(b) Now suppose that firm 1 acquires a new production technique that lowers its per-unit cost moves to c1 = 15 (the other firm still has c2 = 20 ). What are the equilibrium prices and quantities in this new situation, given that the firms behave as Bertrand competitors? What are their profits? Do consumers benefit from the fact that firm 1 now has a more efficient production technique? Discuss.

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