There are two firms competing in a Cournot duopoly facing the following demand

function:

P = 216 8QD,

where QD denotes the total demand in the market; and assume that each firm i has

the following cost function:

Ci(qi) = 24qi

,

where qi [0,) is the quantity produced by firm i. Assume further that this game

will be repeated infinitely many times. Future payoffs are discounted by a common

discount factor i = 0.75 for each firm i. Find a Nash equilibrium in the form of a

grim-trigger strategy. Show and explain your work.

What is the best suggested agreement?