1. Consider the case of two identical firms, each with a cost function C(y_i)=(y_i)²/2 + 10y_i+300, where i=1 or 2. These are the only two firms in the market for this good. The market demand is P = -2Q +280 where Q = y1 + y2

a) If they act as a monopolist, their combined MC = Q/2 +10. Find the monopoly P, Q, and profit for each firm. Assume each firm is producing the total output.

b) Figure the profit for each firm from the following situations:

i) firm 2 produces the the quantity in (a) and firm 1 produces 1 more than that.

iI) firm 1 produces the the quantity in (a) and firm 2 produces 1 more than that.

c) Write the information found in (a) - (c) into a normal form game for the two firms, where the strategies for each firm are the output in (a) and the output in (b). What is the dominant strategy? Explain why this game is an example of a prisoner's dilemma.