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A) Two oligopoly firms, Busy-Time Inc

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A) Two oligopoly firms, Busy-Time Inc. (B) and Home Internet Service (H), produce differentiated Internet service and compete over prices in a one-shot game. The quantity demanded for firm B is qB = 96 - 2pB + pH, the quantity demanded for firm H is qH = 96 - 2pH + pB, where qB, qH ≥ 0 and pB, pH ≤ 48. Marginal cost (c) is 12 for both firms, and fixed costs are zero. Calculate the equilibrium prices for each firm.

b. Following on from question a directly above, calculate the equilibrium quantities for each firm.

c. Questions a and b show that product differentiation can increase prices above marginal costs. In words, briefly describe whether this finding implies lower social welfare overall.