1. Consider the market where there is product differentiation with two firms. The firms are choosing prices p1 and p2 and have demands given by
q1 = 40 - 0.5 p1 + p2
q2 = 60 - 2 p2 + p1
a) Assuming zero marginal and zero fixed costs, what are the firms' best response functions, that is best price of firm 1 given price of firm 2, and best price of firm 2 given price of firm one.