Suppose that there are only two gasoline stations in a small, remote town: Mary's Gas-N-Go (MGNG) and Gas-Be-Nimble-Gas-Be-Quick (GBNGBQ).

The demand for gasoline in the town is Q = 11 - P, where Q is in thousands of gallons of gas. Each has a cost function equal to C = 2 + q. Both MGNG and GBNGBQ can sell as much gasoline as they need to, or they can restrict the amount of gasoline they sell by remaining open fewer hours during the day and other stalling techniques.

a) (10) What is the Cournot equilibrium outcome for this duopoly? What are equilibrium prices, quantities, and profits for each gas station? Clearly label and circle your answers.

b) (10) Suppose that the two gas stations collude to maximize profits. What are equilibrium prices, quantities, and profits for each gas station under the cartel?