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The market for aircraft features only two firms: Boeing (firm 1) and Airbus (firm 2). The inverse demand in the market is given by P
The market for aircraft features only two firms: Boeing (firm 1) and Airbus (firm 2). The inverse demand in the market is given by P = 12 Q, where O is the aggregate quantity. Both firms have a total cost function given by C(qi) = 4qi , i E {1, 2}. (a) Find the Nash equilibrium (q * 1, q* 2) when firms do not collude, and compute the price and profits of each firm in this equilibrium. (b) Suppose that Boeing and Airbus collude to act as a monopolist and split profits evenly. Compute the new equilibrium quantity, price and profits. (c) Now, suppose the total cost functions are C(ql) = 4q1 and C(q2) = 6q2. Find the new Nash equilibrium and compute the price and profits of each firm in this new equilibrium
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