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A homogenous good industry consists of two identical firms (firm 1 and firm 2). Both firms...

A homogenous good industry consists of two identical firms (firm 1 and firm 2). Both firms have a constant average total cost and marginal cost of $4 per unit. The demand curve is given by P = 10 – Q. Suppose the two firms choose their quantities simultaneously as in the Cournot model.

(1) Find and plot each firm’s best-response curve. (Be sure to clearly label your curves, axes and intercepts.)

(2) Find each firm’s quantity and profit in the Nash equilibrium.

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