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Consider an oligopolistic market served by N 2 firms. All firms face the same demand p = a - Q where a > 0

Consider an oligopolistic market served by N 2 firms. All firms face the same demand p = a - Q where a > 0 and Q = 19i. All firms share the same technology, described by the cost function C(qi) = c qi, where a > c 0. All firms compete choosing simultaneously their individual level of production. Suppose that all firms, except firm N, individually choose the level of quantity to maximise own profits. Firm N, instead, is a partially nationalised firm and chooses a level of quantity to maximise a combination of own profits and consumer surplus: where 1 y > 0. W = yN + (1 - y) CS a. Derive and describe the Cournot/Nash equilibrium. Provide a graphical representation of the best response functions and equilibrium. [25 marks] b. Consider now the case where y0. Providing economic intuition, describe how the equilibrium changes. Explain whether and why you find this new outcome realistic. [25 marks]

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