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In Gelate, Pennsylvania, the market for compact discs has evolved as follows. There are two firms that each use a marquee to post the price they charge for compact discs. Each firm buys CDs from the same supplier at a cost of $5.00 per disc. The inverse market demand in their area is given by, where Q is the total output produced by the two firms.
a. Solve for the Bertrand equilibrium price and market output.
b. Would your answer differ if the products were not perfect substitutes? Explain.
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