Consider an industry with two firms that compete in quantities. Both firm have identical cost functions given byTCi(qi)=30qi, where i=1,2 with constant marginal costs of 30.

Market demand is given byP=120-q1-q2, so that firm 1's marginal revenue isMR1=120-2q1-q2 and firm 2's marginal revenue is given byMR2=120-q1-2q2 .

1. Calculate firm 1's quantity in Nash equilibrium.

2. Instead of competing in quantities, the two firm's decide to collude and form a cartel. Assuming that both firm's stick to the Cartel agreement, calculate how much additional profit each firm makes compared to Cournot competition.