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Suppose there is a duopoly of two identical firms, A and B, facing a market inverse...

Suppose there is a duopoly of two identical firms, A and B, facing a market inverse demand of ?=640−2?, and cost functions of ?? =40?? and ?? =40?? respectively.

  1. Find the Cournot-Nash equilibrium and profit for each firm.

  2. Suppose that A acts as the leader in a Stackelberg model and B responds. What are the respective quantities and profits of each firm now? Is it advantageous to move first?

  3. What are the prices, quantities and profits for the firms if they decide to collude and share profits equally?

  4. Graph and label the reaction curves for the two firms and the collusion curve on the same graph. Identify the equilibria from parts a-c.

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