Suppose that firms are Cournot competitors.

Industry demand is given by P = 400q1 q2, where q1 is the output of Firm 1 and q2 for Firm 2. Both firms face constant MC and ATC of $20. Solve for the Cournot price, quantity, and firm profits. Firm 1 is considering investing in costly technology that will enable it to reduce its costs to $15 per unit. How much should Firm 1 be willing to pay if such an investment can guarantee that Firm 2 will not be able to acquire it? Suppose that these two firms merge and form a monopoly, and Firm 2 adopts Firm 1's technology. Find the monopoly price, quantity, profits, and consumer surplus. Now, Suppose that there is price competition, also known as Bertrand Competition, between the two firms. What is Bertrand equilibrium price? What will be the quantity sold at Bertrand equilibrium price for each firm and for the entire market? How profitable is it?