Suppose there are only two firms in a market whose demand curve is given by Q = 10 - P, where Q = Q + Q is the combined output of both firms and P is the market price. Firm 1 has a marginal cost of 2 whereas firm 2 has a marginal cost of + Q. a) Find each firm's equilibrium profits if firms compete in quantities and make their choices simultaneously. b) Find each firm's equilibrium profits if firms compete in quantities and firm 2 chooses first. Which firm is better/worse off now? Why? ACME is a monopolist in the production of widgets in two islands, Blefuscu and Liliput. Demand for widgets in Blefuscu is QB(P) = 400-P, and the demand in Liliput is QL(P) = 4000 - 100P. ACME's production cost is C(Q)= (1/18)Q, where Q is ACME's total output. a) A recent ruling by the antitrust authority forbids ACME to charge different prices at each island. What would be ACME's profits then? b) Dr Gulliver offers ACME a technology that would allow the firm to perfectly price discriminate across units. So, although it is still true that ACME will not be able to charge different prices across countries, it will be able to charge different prices per unit. How much would ACME be willing to pay Dr Gulliver for his invention?