Consider a market with two identical firms. The market demand is P = 26 – 2Q, where Q = q1 + q2. MC1 = MC2 = 2.
1. Solve for output and price with collusion.
2. Solve for the Cournot-Nash equilibrium.
3. Now assume this market has a Stackelberg leader, Firm 1. Solve for the quantity, price, and profit for each firm.
4. Assume there is no product differentiation and the firms follow a Bertrand pricing model. Solve for the Bertrand equilibrium and calculate output, price, and profit for each firm.
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