There are two firms who produce baskets in Alberta. Each firm has a unit cost of production equal to 40, and they compete in the market in quantities. That is, they can choose any quantity to produce, and they make their quantity choices simultaneously. The inverse market demand for baskets is given by P = 400 - 2Q.

a. Show how to derive the Cournot-Nash equilibrium to this game? What are firms' profits in equilibrium?

b. What is the monopoly output, i.e. the one that maximizes total industry profit? Why isn't producing one half the monopoly output a Nash equilibrium outcome?