Assignment 3 (Optional) Total Marks: 90 Problem Solving Questions Read each part of the questions very carefully. Show all the steps of your calculations to get full marks. B1. [15 Marks] Suppose market demand is Q P − =130 . (a) If two firms compete in this market with constant marginal and average costs, , 10=c find the Cournot equilibrium output and profit per firm. (b) Find the monopoly output and profit if there is only one firm with marginal cost 10=c . (c) Using the information from parts (a) and (b), construct a 2 2× payoff matrix where the strategies available to each of two players are to produce the Cournot equilibrium quantity or half the monopoly quantity. (d) What is the Nash equilibrium (or equilibria) of the game you constructed in part (c)? Is there any mixed strategy Nash equilibrium in this game? If yes, what is the mixed strategy Nash equilibrium (or equilibria)?
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