There are two firms producing identical goods. Each firm has the cost structure TC(q)=q^2 +30
These are the only two firms in the market where the MARKET demand for the good = P = -2Q + 50.
a) Find the profit of each firm if EACH firm produces 5 units of output. Show that if one firm produces 6, but the other stays at 5, the firm producing 6 earns more profit.
b) Write the matrix for a game where the strategies for each firm are "produce 5"and "produce 6". The numbers from (a) and (b) will help you fill in some of the payoffs but others will take some more calculation.
c) Explain why the game is a prisoner's dilemma.