Consider an oligopoly in which firms choose quantities. The inverse market demand curve is given by = 280 2( + ), where X is the quantity of Firm 1, and Y is the quantity of Firm 2. Each firm has a marginal cost equal to 40.

a) In a simultaneous Cournot duopoly, what are the best response functions of the firms? Graph them.

b) What is the Cournot equilibrium output for each firm? What is the market price at the Cournot equilibrium? What is the profit of each firm?

c) What is the Stackelberg equilibrium output for each firm, when Firm 1 decides its output first? What is the market price and each firm's profit?