Consider the market for electric cars where (inverse) demand for electric cars is described by P=122-Q , where Q denotes the number of electric cars demanded (in thousands) and Pdenotes the price per electric car.

Manufacturing electric cars involves a fixed cost of $ 2000 , while the marginal cost of production is 2 .

(a)Consider a monopolist producer of cars Green Motors. Find the quantity of electric cars produced, the price per electric car and the profit made by Green Motors. [6 marks]

(b)Now suppose the car market is duopolistic, where Green Motors and its competitor Volkscar engage in Cournot competition. Both firms face the same costs. Describe Cournot competition and find the market outcome in the Cournot equilibrium. Are consumers better off than in (a)? [14 marks]

(c)Suppose the cost of $2000reflects Research and Development (R&D) costs to develop an electric car that cannot be recovered. Would your answer to (b) change? [5 marks]

(d)The government offers Green Motors and Volkscar a subsidy of $500 each. Does this benefit consumers? [5 marks]