Question: Exercise 4. Consider a homogeneous good duopoly with linear demand P (q) = 12-q, where q is the total industry output, and constant marginal costs

Exercise 4. Consider a homogeneous good duopoly with linear demand P (q) = 12-q, where q is the total industry output, and constant marginal costs C = 3. 1. Suppose that firms simultaneously set quantities. Determine the equilibrium (price, quantities, profit, welfare). 2. The firms consider to merge although their production costs are not affected. Determine the solution to this problem. Is such a merger profitable? What are the welfare effects of such a merger? 3. Suppose that the merger is efficiency enhancing, leading to mar- ginal costs Cm

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