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Question: two firms produce a homogenous product let p denote the...

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Two firms produce a homogenous product. Let p denote the products price. The aggregate industry output is Q = qitq2. The inverse demand curve is p= a-Q. Assume that the unit cost of firm 1 is C1 and the unit cost of firm 2 is c2, where a > c2 > c1 > 0. (Clarification: equilibrium means optimal prices and quantities) (a) Solve for the competitive equilibrium. (b) Solve for the Cournot equilibrium (c) Solve for the Bertrand equilibrium (d) Assume firm 2 leaves the market. Solve for the monopolists pM and qM (e) Now calculate social welfare (i.e., CS+ π) for each of these market structures. Compare the results and explain what you find. Note that since there are no fixed costs, π PS.

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