(a) Suppose that the market for the manufacture and sale of notebook computers in Australia is a duopoly with only two companies supplying the market - "Best Notes" and "ABC Computers". Assume that the products produced by the companies are identical so that consumers view the companies' products as perfect substitutes.

Also assume that the cost structures of the companies are identical, and both have no fixed costs and face a constant marginal cost of $40 per unit. Both firms will charge the same price for their notebook computers.

The market demand curve in Australia for notebook computers is:Q = 150 - 2P.The total number of notebook computers produced is Q = Q₁+ Q₂, where Q₁is the quantity of notebook computers produced by "Best Notes" and Q₂is the quantity of notebook computers produced by "ABC Computers".

Determine the Cournot equilibrium for this market. Find the best-response functions for each firm and illustrate these on a diagram. Identify the equilibrium quantity supplied by each firm and mark these on your diagram.

What will be the product price in this market?

(15 marks)

(b) Suppose a wine merchant produces two products, Red Wine and White Wine and in the long run its production technology displays the following costs for producing different quantities of Red Wine and White Wine, where LRTC (i, j) represents the long run total cost of producing (i) units of Red Wine and (j) units of White Wine:

LRTC(0, 100) = $200LRTC(10, 0) = $250

LRTC(0, 200) = $410LRTC(20, 0) = $480

LRTC(10, 100) = $340LRTC(20, 200) = $600

Does the firm's production technology display economies of scale and/or economies of scope? Explain.