Hint to Take Home Quiz

a. If both firms have entered the industry then they will have to negotiate on how they should go about dividing up the output that each should produce in order to get the maximum individual profit. Think of different scenarios. For example should the firm with the lower MC produce all the output and give to the other firm money so that they both would get the same amount of profit. Or should they split the output evenly?

If they have not entered the industry then examine the scenarios in which there is only one firm in the market.

b. Use Cournot model.