Consider duopolists Abra and Kadebra in the market for gizmo. Each seller has the identical cost functions, AC (average cost) = MC (marginal cost) = 2. The market demand functions for gizmo is P = 10 - Q, where Q is the supply of Abra (Q1) and the supply of Kadebra (Q2) combined.

a. If Abra and Kadebra formed a cartel to act like the monopolist and agreed to share the market equally, what would be market equilibrium.

Specifically, what is the market price, each firm's' output and profit?

b. Assuming that Abra produces the agreed amount, what is the profit maximizing output of Kadebra? How much is Kadebra's profit?

c. What would be the market price and two firm's profits in (b)

d. Determine the reaction function of Abra and Kadebra.

e. Determine the Cournot equilibrium (market price and outputs for each firm).

f. If the free entry to the market is allowed, and the market becomes a competitive market, what would be the market equilibrium price and quantity?

pur-new-sol

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