1. Two firms in an oligopoly market practice Cournot behavior.The two firms produce a homogenous product, the market demand for which is

Q(P)= 80 - 4P

Suppose the firms have the same cost functions, with constant marginal cost of 4.

a.Set up the optimization problem and derive the Cournot equilibrium quantities for each firm.

b.Write the best-response functions here:

c. Calculate the market equilibrium price.

d. Calculate the price elasticity of demand at the optimal solution for the oligopolists.