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1. Two firms compete in a market by choosing prices in a static game. The inverse demand curve is given by () = 80 p,
1. Two firms compete in a market by choosing prices in a static game. The inverse demand curve is given by () = 80 p, where () is the total quantity ) = , + and p is the price in the market. Both firms have a marginal cost of 10, so total cost is ;(;) = 10g;. a. Find the Bertrand equilibrium price and quantity for both firms. b. How do Bertrand equilibrium price and quantity compare to perfect compe- tition? c. Suppose that firm 2 discovers a new technology which lowers their marginal cost to 8. What is the resulting quantity and price for the two firms? d. If the two firms were to operate as a cartel (with the costs from part (c)), what would equilibrium price and quantity be
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