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Question 1 (20 points): Mark and Aaron are two individuals who one day discover a stream that ows lime juice instead of water. Mark and

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Question 1 (20 points): Mark and Aaron are two individuals who one day discover a stream that ows lime juice instead of water. Mark and Aaron decide to bottle the lime juice and sell it. The marginal cost of bottling lime juice and the xed cost to bottle lime juice are both zero. The market demand for bottled lime juice is given as: P = 90 - 0.25Q where Q is the total quantity of bottled lime juice produced and P is the market price of Bottled lime juice. 1. What is the economically efcient price of Bottled lime juice? 2. What is the economically efcient quantity of Bottled lime juice produced? 3. If Mark and Aaron were to collude with one another and produce the prot- maximizing monopoly quantity of bottled lime juice, how much bottled lime juice will they produce? 4. Given the output level in (c), what price will Mark and Aaron charge for bottled lime juice? 5. At the output level in (c), what is the welfare loss? 6. Suppose that Mark and Aaron act as Cournot duopolists, what are the reaction functions for Mark and for Aaron? 7. In the long run, what level of output will Mark produce if Mark and Aaron act as Cournot duopolists? 8. In the long run, what will be the price of lime juice if Mark and Aaron act as Cournot duopolists? 9. Suppose that after Mark and Aaron have arrived at their long run equilibrium as Cournot duopolists, another individual, Patrick, discovers the streams. Patrick, who will sell no lime juice before its time, decides to bottle lime juices. There are now three Cournot rms producing at once. In the long run, what level of output will Mark produce

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