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Question: cournot competition with n firms there are three identical firms...

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[Cournot competition with N firms] There are three identical firms in the industry. The inverse demand function is p(Q-1-Q, where Q = q1 +92+93 denotes aggregate output. To facilitate your calculations, assume that the marginal cost for all firms is zero, c 0· 2. (a) Find the best response function for each firm. Interpret b) Compute the Cournot equilibrium. (c) Assume that two of the three firms merge (transforming the industry into a duopoly). Show that the profit of the two merging firms decreases but the profit of the unmerged firm increases. Explain. (d) Assume now that all three firms merge. Show that the profits of all firms increase. Interpret your results in parts (c) and (d)

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