Question: 15.3 Let e, be the constant marginal and average cost for firm i (so that firms may have different marginal costs). Suppose demand is given

15.3 Let

e, be the constant marginal and average cost for firm i (so that firms may have different marginal costs). Suppose demand is given by P = 1-Q

a. Calculate the Nash equilibrium quantities assuming there are two firms in a Cournot market. Also compute market output, market price, firm profits, industry profits, consumer surplus, and total welfare.

b. Represent the Nash equilibrium on a best-response function diagram. Show how a reduction in firm 1's cost would change the equilibrium. Draw a representative isoprofit for firm 1.

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