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1. Consider a Cournot duopoly with the inverse demand p = 130 ? Q. Both firms have constant marginal and average cost MC = AC = 10.
a. Find the Cournot-Nash equilibrium output and profit of each firm. Calculate the consumer surplus and DWL.
b. Suppose those two firms collude as a monopolist, find the equilibrium output and their joint profit. Calculate the consumer surplus and DWL under collusion.
c. Compare your results in (a) and (b).
2. Two firms produce the same product and face a market demand described by Q = 1, 000 ? 20p. Firm 1 has a unit cost of production equal to $10 whereas firm 2 has a higher unit cost of production equal to $20.
a. Find the Bertrand-Nash equilibrium price and profit of each firm.
b. Is this outcome efficient?
c. Suppose firm 2’s marginal cost increases to $40 and firm 1’s cost remains unchanged. What is the Bertrand-Nash equilibrium outcome?
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