Question: Consider a single country and a single good. The demand curve for this good is given by QD = 144 4P. There are two firms

Consider a single country and a single good. The demand curve for this good is given by QD = 144 4P. There are two firms serving the market: Firm A and Firm B, where Firm A has a marginal cost of $20 and Firm B has a marginal cost of $16. There are no fixed costs incurred by either firm. Assume that these firms compete in Cournot fashion.

Part I. How many units of output each firm produces? Show your work. (2 marks) Part II. What is the equilibrium price in the market? Show your work. (2 marks) Part III. How much profit each firm makes? Show your work. (2 marks) Part IV. What is the consumer surplus? Show your work. (2 marks) Alternatively, assume now that these firms compete in Bertrand fashion. Part V. What is the equilibrium price in the market now? Explain your reasoning. (2 marks) Part VI. How many units of output each firm produces? Show your work. (2 marks) Part VII. How much profit each firm makes now? Show your work. (2 marks) Part VIII. What is the consumer surplus? Show your work. (2 marks) Part IX. Under which competition, Cournot vs. Bertrand, social welfare is higher? Show your work.

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