Consider the market for carbonated water and suppose that demand is given by D(p) = 100 – 5p There are only two firms producing carbonated water, each with the same constant unit cost c = 2.
(a) What are the equilibrium prices and quantities if the firms behave as Cournot competitors? What are the firms’ profits?
(b) What are the equilibrium prices and quantities if the firms behave as Bertrand competitors? What are the firms’ profits?