Assume that widget industry is an oligopoly. More specifically, two firms, "Bright Widget" and "Cool Widget", are competing in this market. "Cool Widget" had been secretly developing new technology and now its costs are C(q) = q. "Bright Widget" is working with old technology. Its costs are C(q) = 3q. Assume that inverse demand function is given by P(Q) = 15 2Q, and firms compete in quantities.

(a) [10] Derive and graph best response functions for each firm.

(b) [10] Find the Nash equilibrium quantities, price, and profits for each firm and consumer surplus.

(c) [5] Do these firms have market power? Explain your reasoning. How is /would be the market power manifested in this market?

(d) [10] Now please solve for the number of firms that can be supported by this market. The market condition are summarized below. You may want to use a formula given at the end of the exam. Please assume that inverse demand function is given by P(Q) = 152Q, firms compete in quantities, and all firms entering this market have access to the new technology, i.e. the cost of each firm participating in the market is C(q) = q. To enter firms need to pay the entry cost of Fe = 20. Upon entering, they discount the future at the rate of = 0.95 starting with period two; entry cost is paid in period one, the production also starts in period 1. What is the largest number of firms that this market can support?