Let the inverse demand curve be p(q) = a − bq. Suppose there are two firms, with constant marginal cost equal to C.
Now suppose that the two firm engage in price competition (set p) instead of quantity competition (set q).
A) (Bertrand) If both firms move simultaneously, what are their equilibrium strategies and what is the equilibrium outcome?
B) If the firms have different marginal costs, how does your answer to part A change?