Now assume that you are the business leader at Davidoff and that your only competitor in the market is Partagas. Assume that the demand for the two companies is Q = 500 - 10P, where Q = QD + QP, and that the companies have identical production costs where TC (Q) = 12.5Q. Companies also take production decisions at the same time.

a) What market form prevails in the market? What assumptions do you base this on?

b) What is the profit-maximizing price, quantity and profit in the market and for the companies given this market form? Also present the solution graphically where it is appropriate

c) Assume that Davidoff streamlines its production process and that it leads to their

production costs fall to TC (Q) = 8. What is now profit-maximizing price, quantity

and profit in the market and for companies? Also show graphically.