1) Market demand is given by P = 140 -Q. There are two firms, each with unit costs = $20. Firms can choose any quantity. Find the Cournot equilibrium and compare it to the monopoly outcome and to the perfectly competitive outcome. Why isn’t the latter equilibrium of the market game?
2) What is the outcome of the oligopoly in number 7 as the number of firms grows large? Why will this number of firms grow large? Is this outcome a tradgedy?
3) Suppose that two firms both have AVC = $50. Market demand is given by Q = 100 - P. Find the Bertrand Equilibrium. Would your answer be different if there were three firms?