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Suppose that the widget industry is a Cournot duopoly. The industry demand curve is: P =...

Suppose that the widget industry is a Cournot duopoly. The industry demand curve is: P = 561 – 32Q, where Q = q1 + q2 is industry output.

Marginal cost is 20 for each firm.

a) Calculate the equilibrium industry price and the profit levels for each firm.

b) Suppose that Firm 1 reduces its marginal cost to 10. Calculate the new price and profit levels.

c) Calculate the HHI before and after the cost reduction by Firm 1. Is there a correlation between the HHI and industry profits?

d) If so, does the correlation mean that increases in d industry concentration imply harm to consumers?

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