1. Consider a market with market demand P(Q) = 86-2Q and each firm in the market faces a total cost TC(Q) = 38Q. Suppose there is only one firm in the market. (a) What is the profit-maximizing price and quantity be in the market? (b) What are the profits and consumer surplus? Now suppose we have a Cournot duopoly where firms choose quantities. (c) What is the equilibrium price and market quantity? (d) What is the consumer surplus and profits for each firm? (e) What happens to total market profits and consumer surplus as we increase from one to two firms? 2. Consider a market with demand P(Q) = 77-2Q in which two firms compete. Firm 1 faces TC1 (Q) = 17Q and firm 2 faces TC2(Q) = 5Q. (a) Find the reaction function for firm 1. (b) Find the reaction function for firm 2. (c) Find the Cournot equilibrium (Q1, Q;, p*). (d) Determine profits for each firm and consumer sur- plus. 3. Consider a market with demand P(Q) = 112 - 3@ in which 9 identical firms compete. All firms face TC(Q) = 52Q. Let X = Q2 + Q3 + . . . +Qg. (a) Write out the residual demand curve for firm 1 in terms of X and Q1. (b) Find the corresponding marginal revenue. (c) What is the reaction function for firm 1 (in terms of X). (d) Find the Cournot equilibrium (market quantity QM*, P*). (e) Determine profits for each firm. 2