small typo on 6(a). It should read "You answers should be functions ofa, ?,andc" because we haven't introduced ? yet. The rest of the problem should work -- in particular?does not appear in 6(b).

. (35 points) Consider a market with two rms in Cournot (quantity) competition. Mar ket demand is given by q[p) = r1 11. Each rm faces a. constant marginal oost of e. a. (15 points) Suppose that the government imposes a unit tax of ti, so that if a rm sells q units of the good, that rm ewes q - 6 to the government. Find the equilibrium quantity, price paid by consumers, consumer surplus, and tax revenue. Your answers should be functions of (1,7, and (3. Make sure you box your answers. Hint: you can think of (i as an increase in the rms' marginal cost. b. (20 points) Now suppose the government imposes a excise tax of 7, so that if PR is the price charged by firms, the price that consumers pay is p = PR(1 + 7). Find the equilibrium quantity, price paid by consumers, consumer surplus, producer surplus, and tax revenue. Your answers should be functions of a, T, and c. Make sure you box your answers. Note: This is the most math-intensive question on the exam. Feel free to skip this on first glance and come back to it. Hint: Start by solving for PR as a function of a, 91, 92 and T