Business, competition, regulation.

Suppose that two rms (A and B) each produce a homogeneous product in quantities 954 and g3, respectively. The market demand is given by Q = 90 VaP, where Q is the market output and P is the market price. Based on this description, answer the following questions: a) Suppose that each rm faces the same cost function, C(q) = 40 + 909' where q is the rm's output level. Calculate and explain how you solve for each firm's quantity of output and prot under a CournotNash equilibrium, and sketch the reaction functions for both rms in one diagram where gig is on the horizontal axis. Make sure to label your diagram completely. (9 marks) b) Now, suppose that Firm A's marginal cost falls to 60 per unit whilst Firm B's costs remain unchanged. Intuitively, what do you think would happen to each rm's output level and to the market output and price? Explain your reasoning (without any additional calculations) and illustrate this change in your diagram of the two rms' reaction functions. Make sure that your diagram is properly labelled