(2) Consider a market with five quantity-setting firms called 1, 2, 3, 4, and 5.

The firms face a market demand function of P = 360 Q and thus MR = 360 2Q_i Q_-i

Each firm initially has the cost function C(Q_i) = 1,000 + 60Q_i and thus MC_i = 60. The firms choose their quantities simultaneously, as in Cournot competition.

I. When there is non-cooperative behavior among all five firms: ____ Equilibrium quantity ____ Market price ____ Profit

II. Firms 4 and 5 merge, reduce their marginal cost to 40, have total fixed costs of 1,200; C(Q_i) = 1200 + 40Q_i MC_i = 40 ____ Equilibrium quantity of each unmerged firm ____ Profit of each merged firm ____ Equilibrium quantity of the merged firm ____ Profit of the merged firm ____ Market price

III. Given that firms 4 and 5 have merged as described, do firms 2 and 3 want to merge and take the same cost changes as 4 and 5? A) Yes B) No