Question 2 15 points Two identical firms face a demand curve

Question 2 (15 points) Two identical firms face a demand curve given by P(Q)-24-Q. where Q is the sum of tities they set privately. Each firm has a cost function of c(a)-5.Q. The firms face the same market for 20 periods, and chooses their own quantities, Q, and Q2 to sell simultaneously. a) (5 points) By period 20, what quantities would each of them be setting? You must indicate the actual numbers they would choose and show your steps. b) (5 poin ts) What would happen if the game is played as an experiment in the lab? c) (5 points) Now suppose the two firms have a chance to chat before making their decisions. They play this game for another 20 periods (period 21-40) and there is no other seller on the market. What quantity would each of them be setting at the end of period 40? Explain your answer. 2

Solution

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