. Consider two firms facing demand curve = where = + . The firms 'cost functions are:

( ) = +

( ) = +

These costs indicate that firm one has higher fixed costs but lower variable costs than firm 2.

a) Suppose both firms have entered the industry. What is the joint industry profit-maximizing level of output? How much will each firm produce? Would your answer change if one or both of the firms had not yet entered the industry?

b) Use the Cournot model, what is each firm's equilibrium output and profit if they behave non-cooperatively? Draw the firms; reaction curves and show the equilibrium