3 Mergers in a Cournot setting
Consider a market with five quantity-setting firms called 1, 2, 3, 4, and 5. The firms face a market
demand function of $P = 360 - Q$. Each firm initially has the cost function $C(Q_i) = 1,000 +$
$60Q_i$. The firms choose their quantities simultaneously, as in Cournot competition. For each case
listed below, provide the equilibrium quantity of each firm, the market price, and each firm's
profit.
1. Non-cooperative behavior among all five firms.
2. Firms 4 and 5 merge, reduce their marginal cost to 40 and have combined fixed costs of 1,200