Consider a market where two firms are competing in quantities. Suppose that the market inverse demand function is given by:

p = 750

– 15(q1

+ q2

)

Each firm has zero fixed costs and constant marginal cost of production c.

(a) Write out each firm’s profit function, and solve for the two first-order profit maximization conditions.

(b) Use the two first-order conditions to solve for each firm’s reaction function, and plot these two reaction functions.

(c) Solve for the Cournot equilibrium

(d) Use the demand function to solve for the equilibrium market price, and then solve for the level of profits earned by each firm in equilibrium.