Consider a market with two firms in Cournot (quantity) competition. Market demand is given by q(p) = a p. Each firm faces a constant marginal cost of c.

1)Suppose that the government imposes a unit tax of , so that if a firm sells q units of the good, that firm owes q to the government. Find the equilibrium quantity, price paid by consumers, consumer surplus, and tax revenue. Your answers should be functions of a, , and c. Make sure you box your answers.

2)Now suppose the government imposes a excise tax of , so that if pR is the price charged by firms, the price that consumers pay is p = pR(1 + ). Find the equilibrium quantity, price paid by consumers, consumer surplus, producer surplus, and tax revenue. Your answers should be functions of a, , and c. Make sure you box your answers.