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Consider the following duopoly Demand is given by P 10 Q where Q Q1 Q2 The firms' cost functions are

Consider the following duopoly. Demand is given by P = 10 - Q, where Q = Q1 + Q2. The firms' cost functions are Cl(Q1) = 4 + 2Q1 and C2(Q2) = 3 + 3Q2. a. Suppose both firms have entered the industry. What is the joint profit-maximizing level of output? How much will each firm produce? How would your answer change if the firms have not yet entered the industry? b. What is each firm's equilibrium output and profit if they behave non cooperatively? Use the Cournot model. Draw the firms' reaction curves1 and show the equilibrium. c. How much should Firm 1 be willing to pay to purchase Firm 2 if collusion is illegal, but the takeover is not?

May 02 2020 View more View Less

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