Suppose the short-term equilibrium corresponds to the Bertrand equilibrium with two firms, 1 and 2, facing the inverse demand =10-1-2 and incurring a constant marginal cost 1=2= 2. If it helps suppose 0 is the smallest monetary unit and can be as small as we want.

A) Determine the monopoly profit and assume it is split equally among the two firms.

Assume firm 1 deviates from the collusive outcome.

B) Determine the output and profit for both firms during the deviation period.

C) Determine the punishment output and profit for both firms, which correspond to the output and profit for both firms at the Bertrand equilibrium.

D) Determine the discount rate that makes collusion sustainable assuming both firms adopt a trigger strategy.

E) Explain whether collusion is more or less difficult to sustain when firms revert to the Cournot equilibrium rather than to the Bertrand equilibrium during the punishment phase.