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Consider an upstream monopoly firm M who can produce a good at zero marginal cost: C(Q) = Q with c = 0. (Producing for free

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Consider an upstream monopoly firm M who can produce a good at zero marginal cost: C(Q) = Q with c = 0. (Producing for free is not very realistic, but it simplifies the math!) This good is sold at a wholesale price p to two downstream retailers, RI and R2, who sell the good to final consumers at retail price p. The retail price p is determined through Cournot competition between the retailers. Specifically, each retailer i = {1, 2} first chooses a quantity q; to buy from the upstream monopolist at the wholesale price p. The retail price p then adjusts to clear the retail market. Retail demand is described by the inverse demand function p = 1 - Q, where Q = q1 + 92 is the total quantity supplied by both retail firms. 1. For a given wholesale price p

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