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Suppose there are two firms in an industry, Firm 1 and Firm 2. The demand curve for the product that they sell is P= 68-5Q.

Suppose there are two firms in an industry, Firm 1 and Firm 2. The demand curve for the product that they sell is P= 68-5Q. Q = total output in kg i.e., Q=Q1+Q2 and Q1 and Q2 refers to output by Firm 1 and Firm 2 respectively. The firms face the same cost curve. Total Cost Curve for Firm 1 is TC1=20+10Q1 and similarly for Firm 2 TC2=20+10Q2.You can round your answer to two decimal point where rounding needed. (a) (b) (c) Suppose (as in the Cournot model) that each firm chooses its profit-maximizing level of output on the assumption that its competitor's output is fixed. Find each firm's reaction function and graph them. Find the equilibrium price and output for each firm in a Cournot Equilibrium? Explain your answer. [50 points] Find the profit for each firm using information from a) ? [15 points] If it was legal for Firm 1 and Firm 2 to collude and act as a monopolist, calculate what output would be produced, what price would be charged and what level of profit could be earned by each firm if they shared the profit equally. You can assume that cost curve for the monopolist is still TC =20+10Q. How does this compare to a) and b). Is this likely to be a stable outcome, explain why/why not. [35 points]

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