Suppose there are two firms producing an identical product with inverse market demand given by P = 4000 - 2Q, where Q is the total quantity produced by firm 1 and firm 2. Each firm has zero fixed costs and constant marginal costs of $1,000. Show your work below. First, suppose the firms behave as Cournot competitors

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a. (10 points) Derive the response function for firm 1.

b. (12 points) What quantity will each produce? What price will they receive?

c. (8 points) How much profit does each firm earn?

Now suppose that firm 1 is a

Stackelberg quantity leader and chooses its quantity first. d. (12 points) What quantity will each produce? What price will they receive?

e. (8 points) How much profit does each firm earn?

Now suppose instead that the firms behave as Bertrand competitors.

f. (10 points) Derive the response function for firm 1.

g. (12 points) What will be the equilibrium price? What total quantity (Q) will be produced?

h. (8 points) How much profit does each firm earn?

Now suppose that the two firms cooperate and behave as a single monopolist, while splitting market demand equally.

i. (10 points) What quantity will each produce? What price will they receive?

j. (10 points) How much profit does each firm earn?