Consider 2 firms, each has MC = 0. The 2 firms compete in quantity in the market with inverse demand P = 150-10Q where Q is the economy’s total output. If the two firms each starts at 0 production level and has to decide whether it should increase production,
a. What is the final outcome of the market? What are q1, q2, Q, P in equilibrium?
b. What happens to q1, q2, Q, P when firm 1 makes the decision first, then firm 2 observes firm 1’s q1 and decides accordingly?