Question 3 (18 marks)

Assume that two companies (A and B) are duopolists that produce identical products. Demand for the products is given by the following linear demand functions:

P=700-QA-QB

where QA and QB are the quantities sold by the respective firms and P is the selling price. Total cost functions for the two companies are

TCA = 10000+100QA

TCB = 8000 + 130QB

1. Assume that the firms act independently as in the Cournot model, determine the long-run
2. equilibrium output and selling price for each firm. (12 marks)
3. Determine the total profits for each firm at the equilibrium output found in part (a). (6
4. marks)