suppose there are two firms that compete in prices, say firms 1 and 2, but that the firms produce differentiated products. Suppose that the demand for firm 1 is q1(p1,p2)=10-2p1+p2 and the demand for firm 2 is q2(p2,p1)=10-2p2+p1. Also, assume that firm 1 has a constant marginal cost of c1 = 2 and firm 2 has a constant marginal cost of c2 = 3.   i. Solve for the Bertrand equilibrium in prices. ii. Now, suppose firms 1 and 2  merge and firm 1 will operate both firms and they will split the resulting profits equally. Will both firms agree to this merger or do they prefer the Bertrand outcome?

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