The market demand for a product is P= 100 - Q. Two firms - and only two firms - serve this industry.MC = 20 for each firm, and FC = 300 per firm.

a)Find the Cournot/Nash equilibrium for this industry.How much output does each firm produce? What is the market price?How large are each firm's profits?

b)If the firms collude, what price do they charge to maximize profit?What is each firm's output? Calculate each firm's profits (assume that both firms must incur fixed costs even if they collude).

c)The last part of this question is about what we expect to happen in this industry.Suppose the two firms are deciding between producing the Cournot output (from part a) and the collusive output (from part b).Calculate the payoff (profit) for firm 1 if it plays "Cournot" while the other firm plays "collude." And vice versa.

d)Fill in the following payoff matrix.In each cell, put (profits for firm 1, profits for firm 2).

Firm #2 plays Cournot Firm#2 plays collude

Firm#1 plays Cournot

Firm#1 plays collude

e)With reference to this matrix, what do you expect to see happen?(Think this through by asking yourself, "suppose firm 2 plays Cournot.What would I (firm 1) prefer to do?" And so on...)