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Consider a market in which firms face a market demand curve given by: P = 230 - Q where P is price and Q is
Consider a market in which firms face a market demand curve given by:
P = 230 - Q
where P is price and Q is market quantity. The total cost function is TC=50q where q is firm's quantity and is the same for all firms. Two firms operate in this market and they simultaneously choose quantities. Explain what are the firms' incentives to prevent entering into a price war (meaning that the firms would then simultaneously choose prices rather than quantities). What actions might they take to avoid a price war?
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