The anti-seizure medication fosphenytoin (or "fospheny," for short) is produced by two firms: Mylan and Amneal. If Mylan and Amneal set their manufacturing capacities to produceq_Mandq_Athousand vials per year, respectively, then the market price will be

P(q_tot)=150 5/36 q_tot,

whereqtot=q_A+q_M,and price is given in dollars per vial. Assume throughout that the marginal cost of producing a vial of fospheny is zero. The two firms simultaneously choose their capacities as in the Cournot model.

Are each of the following statements true or false?

For 1-3, assume that the firms' fixed costs are sunk and hence can be ignored.

1.If Amneal sets its capacity to produceqAthousand vials per year, then Mylan maximizes its profit by setting its own capacity to produce540 1/3 q_Athousand vials per year.

2.At Nash equilibrium, each firm produces 360 thousand vials of fospheny per year.

3. At Nash equilibrium, each firm makes a profit (gross of sunk costs) of $15 million per year.

For 4-5, suppose each firm incurs a (non-sunk) fixed cost of $15 million per year if it chooses to operate (i.e., produce any vials of fospheny).

4.Suppose Mylan produces 360 thousand vials of fospheny per year. Then Amneal's best response is to do so as well.

5.Suppose Mylan chooses its quantity assuming Amneal does not operate. Then Amneal will choose to operate.