Suppose that two firms compete in quantities (Cournot) in a market in which demand

is described by: P = 260 - 2Q. Each firm incurs no fixed cost but has a marginal cost

of 20.

a. What is the one-period Nash equilibrium market price? What is the output and

prot of each firm in this equilibrium?

b. What is the output of each firm if they collude to produce the monopoly output?

What profit does each firm earn with such collusion?

c. Calculate the range of discount factor (delta) for future prots to maintain a Cartel in an infinitely repeated game.

d. Will (delta) be the same if these two firms compete in prices (Bertrand)? If not, find the

range of (Delta) in Bertrand settings.