Consider a duopoly in which two firms produce different varieties of a differentiated product at constant average and marginal cost 4 per unit. let the equations of the inverse demand curves be
p1 = 700 - 7/5 (q1+ (6/7)q2)
p2 = 700 - 7/5 ((6/7)q1 + q2)
(both equations valid where the implied prices and quantities are nonnegative) (a) find nash equilibrium prices, quantities, and payoffs for a one-shot game if both firms set quantities. (b) find nash equilibrium prices, quantities, and payoffs for a one-shot game if both firms set prices. (c) compare equilibrium prices in (a) and (b). which type of competition (in quantities or in prices) has lower equilibrium prices? why? show the derivations of your answers.
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