The market demand for a product is given by: P = 680 - 2Q The marginal cost of production is constant at MC=40

a. What is the economically efficient price and quantity in this market?

b. If the industry is a Cournot duopoly and they are able to collude how much is the welfare loss compared to the efficient outcome in part a? How much profit would the colluding firms make?

c. Show that the firms would have an incentive to deviate from the collusive quantities by deriving their reaction functions. What would be the Cournot-Nash equilibrium quantities, price and profits of the two firms? Is this an improvement over part b?

d. Suppose that a third firm enters. Calculate the Cournot-Nash equilibrium quantities, price and profits in this three firm oligopoly scenario. Is the outcome better than part c?