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Consider two identical firms competing in a market described by: • (Inverse) Demand: P = 50...

Consider two identical firms competing in a market described by:

• (Inverse) Demand: P = 50 − Q , where Q = q1 + q2

• Cost Firm 1: C1 = 20q1 +q1^2

• Cost Firm 2: C2 = 20q2 + q2^2

a. (1 point) What is firm 1’s marginal cost? Firm 2’s marginal cost? What can you observe about these two firms?

b.(2 points) What are the equilibrium price (P∗), production quantities (q∗1,q∗2), and profits(π∗1,π∗2), if these firms are rivals – what is the outcome in the perfectly competitive model?

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