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of 2 Question 2. Oligopoly Suppose there are two firms competing in a market by setting quantity simultaneously. Suppose that the cost function for both of them is: C(qx) = where = 1 or = 2 when the firm is firm 1 or firm 2, respectively. The market price is given by the inverse demand function P = 300 Q where Q is the market quantity, or the sum of the individual firms' quantities (Q = ql + Q). Part a) Find the best response functions for firm 1 and firm 2. Graph these best response functions on the same graph. Part b) Find the Nash equilibrium price, the quantity produced by each firm and the profit for each firm. Part c) Suppose there are 3 firms in the market instead of 2, each with the same cost function, C(q) where = 1, 2, 3. Find the new Nash equilibrium price and quantity produced and profit for each firm. Part d) Return to the situation in which there are only 2 firms. Suppose firm 1 can credibly commit to a quantity to produce before either firm produces. Find the new price in the market, as well as the and the quantity produced and profit for each firm. Part e) Suppose instead that the two firms get past anti-trust regulations and merge into one massive firm. Assume the cost function of this merged company remains the same, C(q) = 30q. Find the new market price, and the quantity produced and profit of the merged firm. D ZOOM