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An industry consists of three firms with identical costs C (q)18q +q2. Market demand is Q = 150 - p.

I. What is the industry equilibrium (price, output and profits) if the firms have Cournot beliefs?

II. Would it pay for Firm 1 and Firm 2 to merge, if, after the merger, the remaining firm plays Cournot? (Hint: carefully consider if the merged firm would produce using both original firms' plants and just those of one firm.)

III. What happens if their costs are C (q) =18q instead?

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