Question: Demand for the product Kalgen in Mo-Town is given by \(D(p)=50-0.05 p\). The total cost function for any firm in this industry is given by \(\mathrm{TC}(\mathrm{y})=4 \mathrm{y}\). (i) Suppose there are two Cournot firms in the market. Find the reaction function, equilibrium output and price for both Firm 1 and Firm 2. (ii) Draw the two reaction curves in a diagram and indicate all details (i.e. equilibrium point, iso-profit curves, etc.). (iii) What would happen to the equilibrium price and output if the two firms collide? (iv) Suppose now the industry becomes perfectly competitive. What would happen to the equilibrium price and output? Can you compare the change in consumer's surplus with the situation in part (i) when there were only two oligopolistic firms in the industry? If yes, provide all details.

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