Two firms, Firm 1 and Firm 2, are competing in an oligopolistic industry. They produce an identical product. Firm 1 does it at a lower cost than Firm 2. Firm 1 has a constant marginal cost of $15 and firm 2 has a constant marginal cost of $30. The market demand for the commodity is: p = 120 y , where y is aggregate output.

(a) Suppose that firms choose quantities. Find both best-response functions. Remember, marginal costs are different, so the best response functions will not be symmetric.

(b) Find the Cournot-Nash equilibrium quantities. Illustrate your results in a diagram.

(c) Suppose that the firms choose prices instead of quantities and that prices must be announced in dollars and cents. (That is, $15.71, and $39.00 are permissible prices, but $45.975 is not.) What are the Bertrand equilibrium prices? How much does each firm earn in the Bertrand equilibrium?