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1} Suppose that two identical rms produce widgets and that they are the only firms in the market. Their costs are given by C1 =
1} Suppose that two identical rms produce widgets and that they are the only firms in the market. Their costs are given by C1 = 1091 and C} = 10%" where Q1 is the Output of Firm 1 and Q2 the output of Firm 2. Price is determined by the following demand curve: P: 40 Q where Q = Q1+ Q. a. Calculate the best response function {reaction function} for each firm. b. Find the Cournot-Nash equilibrium and calculate the profit of each firm at this equilibrium. c. Find the Stackleberg-Nash equilibrium assuming rm 1 as leader firm and calculate the prot of each firm at this equilibrium. d. Suppose the two rms collude or form a cartel to maximize joint profits. How many widgets will be produced? Calculate each rm's profit
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