Two firms, A and B, have complete control of the supply of mineral water and both have zero costs. Their best reply functions (BRP) are given by: qA= 10-.5qB qB= 10-.5qA

a) Find the Cournot solution for the market price and output of mineral water and illustrate with a simple graph.

b) The marginal revenue function facing a monopolist is given by: MR = 200-20Q Demonstrate that firms A and B have an incentive to cooperate and maximize joint profits.

c) Assume each firm can select two output strategies -specifically the strategies from parts (a) and (b). Denote these alternative output strategies qa and qb. Compute and payoff/profit matrix showing the four possible outcomes.

d) Does the game that you developed in preceding part have a determinate outcome- i.e., is there a dominant strategy? Explain.