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(Static Cournot Model) In Long Island there are two suppliers of distilled water, labeled firm 1...

(Static Cournot Model) In Long Island there are two suppliers of distilled water, labeled firm 1 and firm 2. Distilled water is considered to be a homogenous good. Let p denote the price per gallon, q1 quantity sold by firm 1, and q2 the quantity sold by firm 2. Firm 1 bears the production cost of c1 = 4, and firm 2 bears c2 = 2 per one gallon of water. Long Island’s inverse demand function for distilled water is given by ? = 10 − 1 4 ? where Q = q1 + q2 denotes the aggregate industry supply of distilled water in Long Island. Solve the following problems: (a) Suppose the firms compete in quantities (production levels). Compute each firm’s quantity best response function and conclude how much each firm produces in a Cournot-Nash equilibrium.(b) Compute the price and the profit of each firm in a Cournot-Nash equilibrium.

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