Two Firms, CS Corp. and JL & Associates make identical goods and sell them in the same market. Market demand is given by Q = 1200 -P . Once a Firm has built capacity, it can produce up to its capacity each period with a marginal cost of MC = 0. Building a unit of capacity costs 240 (for both Firms). Once production occurs, price in the market adjusts to the level at which all production is sold. (In other words, these Firms engage in quantity competition, not price competition.)
a. IF CS knew that JL was going to build 100 units of capacity, how much would CS want to build? If CS knew that JL was going to build X units of capacity, how much would CS want to build?
b. IF CS and JL each had to decide how much capacity to build without knowing the other's capacity decision, what would the Cournot equilibrium be?