Assume that two firms choose their prices in a static game asBertrand competitors. Both produce the same homogeneous good. Themarket demand equation is Q = 80 – P. Marginal cost equals 20 up toa maximum possible output of 30 due to a short-run capacityconstraint. a. Explain in detail why there is no equilibrium in thisgame. b. Now assume that the two firms play a dynamic game choosingtheir capacities simultaneously in the first time period and thencompete based on price at time period 2. What will be the twofirms’ equilibrium capacities and prices in this game? Explain howyou determined the equilibriums. . . .
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