Question: 2. Consider a market in which there are only two firms, each sets quantities, and the price is determined by the market. The price in

2. Consider a market in which there are only two firms, each sets quantities, and the price is determined by the market. The price in the market is given by p = 120 - q, - q2. The costs for firms 1 and 2 are described by the following functions: C(q1) = q; and C(q2) = q2. a. Specify a function for each firm which gives profits for any quantity of production selected. b. Find an expression for each firm's best response function. c. Solve for the Cournot Nash Equilibrium quantities produced by each firm and market price. d. Suppose the firms can collude and they agree to produce the same quantities: q1 = q2 = q. For any q determine the profits of each firm. What quantity would they set to maximize the profits of each firm? e. How does the collusive quantity compare to the Cournot Nash Equilibrium quantity? What are the markups under the collusive and Cournot Nash outcomes (calculate markup as the price divided by the marginal cost)? Provide intuition for why these results differ in no more than two sentences. f. How does the total quantity under collusion compare to the quantity a monopolist would set? What are the markups under the collusive and monopoly outcomes? Provide intuition for your results in no more than two sentences

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