Two firms named A and B choose quantities QA and QB simultaneously. That is, they play a Cournot game. They produce homogenous products and face the inverse demand curve P=12-Q, where Q=QA+QB. For both firms, marginal cost is zero and fixed cost is 5.

a. What are the price and quantities in this market?

b. Suppose firm A needs a loan to stay in business. The bank will offer a loan only if A can make profits of 4. Will the firm get a loan in part (a)?

c. What is a quantity that B could play that would prevent firm A from getting a loan? Remember that A will play its best response to whatever B chooses.

d. Would you regard B's strategy in part (c) as predatory? Does this strategy satisfy the Areeda-Turner rule for predatory pricing?

e. Derive the lowest quantity that Firm B could choose that would prevent A from getting a loan.