Oligopoly 1. A monopolist can produce at a constant average (and marginal) cost of AC = MC = $5. It faces a market demand curve given by 9 - 53 - P. a. Calculate the profit-maximizing price and quantity for this monopolist. Also calculate its profits. b. Suppose a second firm enters the market. Let Or be the output of the first firm and O2 be the output of the second. Market demand is now given by 21 + 02-53 - P. Assuming that this second firm has the same costs as the first, write the profits of each firm as functions of Q1 and Oz. c. Suppose (as in the Cournot model) that each firm chooses its profit-maximizing level of output on the assumption that its competitor's output is fixed. Find each firm's "reaction curve" (that is, the rule that gives its desired output in terms of its competitor's output). d. Calculate the Cournot equilibrium (that is, the values of 21 and O2 for which each firm is doing as well as it can given its competitor's output). What are the resulting market price and profits of each firm