2. The industry demand is P (y) = 14 - 2y: There are two firms, 1 and 2. Each firm has one plant. The cost function for firm 1 is C1(y1) = 0 and for firm 2 is C2(y2) = y2: (a) Find the Cournot equilibrium quantities, prices, profits, and total surplus.

(b) Suppose now that a private equity firm buys both firms. Does the new owner operate both plants? Find the monopoly quantity, price, profit, and surplus.

(c) Compare your results from (b) to the magnitudes in (a) and explain the difference. What are the sources of inefficiency?