Problem 2 Suppose in the European market for natural gas, there is a duopoly with two identical firms. The demand for natural gas in Europe is given by p=77Q.Q denotes the quantity in billions of cubic feet per day. The marginal cost of producing natural gas is equal to 5 cent per cubic foot. (a) (0.5 points) Using best response functions, compute market output, market price, firm profits, consumer surplus, and total welfare in the setting with symmetric firms. (b) (1 points) Draw the iso-profit curve for firm 1 in (q1,q2)-diagram for the equilibrium profit of firm 1. Do the same for firm 2. In the diagram, identify the Nash equilibrium. Moreover, indicate the area in the diagram in which both firms have higher profits than the Nash equilibrium. Why do these combinations of q1 and q2 give higher profits to both the firms? (c) (0.5 points) Suppose the two firms coordinate their actions and act as a single monopolist. What are individual profits and outputs in this coordinated situation? What is the monopoly price of a cubic foot of natural gas? Problem 2 Suppose in the European market for natural gas, there is a duopoly with two identical firms. The demand for natural gas in Europe is given by p=77Q.Q denotes the quantity in billions of cubic feet per day. The marginal cost of producing natural gas is equal to 5 cent per cubic foot. (a) (0.5 points) Using best response functions, compute market output, market price, firm profits, consumer surplus, and total welfare in the setting with symmetric firms. (b) (1 points) Draw the iso-profit curve for firm 1 in (q1,q2)-diagram for the equilibrium profit of firm 1. Do the same for firm 2. In the diagram, identify the Nash equilibrium. Moreover, indicate the area in the diagram in which both firms have higher profits than the Nash equilibrium. Why do these combinations of q1 and q2 give higher profits to both the firms? (c) (0.5 points) Suppose the two firms coordinate their actions and act as a single monopolist. What are individual profits and outputs in this coordinated situation? What is the monopoly price of a cubic foot of natural gas