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Suppose that two firms compete in the same market producing homogenous products with the following inverse...

Suppose that two firms compete in the same market producing homogenous products with the following inverse demand function:

P=1,000-(Q1+Q2)

The cost function of each firm is given by:

C1=4Q1

C2=4Q2

  1. Suppose that the two firms engage in Bertrand price competition. What price should firm 1 set in equilibrium? What price should firm 2 set? What are the profits for each firm in equilibrium? What is the total market output?
  2. Suppose that the two firms collude in quantity, i.e., acting together as a profit-maximizing single firm. What are the equilibrium market price, total industry output, and each firm’s profits?
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