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Two identical firms each have a cost function TC = 2y2 and the market demand for their output is P = -4Q+192

a)  Write the "best response" function for each firm.

b)  Find the Nash equilibrium in this model  

c) Show that if each firm produces 1 fewer units than the result in (b), both firms make more profit.  Use this information to construct a normal form game.  Explain why this game is a prisoner's dilemma.

Macroeconomics, Economics

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