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2 Oligopoly The duopoly model that we have discussed assumes rms choosing their quantities of product to compete. ln this exercise, we consider an alternative model of duopoly. Firms 1 and 2 set prices for their products: 391 and p2. lf 391 392, rm 2 sells (12 : a bpg and rm 1 sells nothing; and if 391 : 392, each rm sells half of the total demand: abp1 : abpg. Suppose that each rm has a cost function given by C(q : egg. 2.1 Find the equilibrium prices 391 and 192 in this market. 2.2 How does the outcome you've found in 2.1 compare to the equilibrium of the quantitysetting Cournot model, or to the competitive outcome in this market? What are the equilibrium prots in 2.2? Would the same result hold if there were three or more rms in the market? 2.3 (something to think further and you need not to answer this part.) Suppose that you are involved in a case before the Justice Department, in which a merger is to be evaluated that will leave a market that currently has three rms with only two rms. A central concern of the Justice Department on considering mergers is their effect on consumer priceswill the proposed merger lead to higher prices? lf so, the Justice Department is less likely to approve the merger. lf you represented one of the rms that wanted to merge, which model of the resulting duopoly market would you be inclined to use as the basis for your analysis? Which would you use if you worked for the Justice Department? As an outsider, which do you think is more appropriate? This question is likely to depend on the industry involved, so suppose it is airlines. Which model do you think is more appropriate