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Q1 (14 MARKS) Suppose two firms produce identical goods. The market demand curve is given by P = 400 - 2Q Each firm has a
Q1 (14 MARKS) Suppose two firms produce identical goods. The market demand curve is given by P = 400 - 2Q Each firm has a total cost function given by TC (qi) = 8qi 10 a) Assume both firms have limited capacities each can produce a maximum of 104. Find the range over which prices fluctuate, that is, the maximum and the minimum price that either competitor will charge for the product. Explain the all the steps you are taking to find this range. 4 b) In three steps explain why firms are willing to let prices fluctuate over this price range using the numbers you found in part a)
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