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1. The inverse market demand curve is P = 260 - Q, where Q is the output of Firm 1 and Firm 2, q1 + q2. The output of the two firms is identical.
A. Firm 1 and Firm 2 have the same cost structure: AC = MC = $20. If the firms are in Cournot competition, how much profit does each firm earn?
B. Now suppose that Firm 2's production costs increase to AC = MC = $80. If the firms continue their Cournot competition, how much profit does each firm earn?
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