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2. Suppose in Arganocia there are only two producers of electricity, Ample Power and Voltmills. The...

2. Suppose in Arganocia there are only two producers of electricity, Ample Power and Voltmills. The city’s inverse demand curve for electricity is P = 8 – 0.05Q where P is the price of electricity in dollars per kilowatt-hour (kWh) and Q is the quantity of electricity in millions of kilowatt-hours. Ample Power’s total cost of producing electricity is TC = 0.04Q, and Voltmills’s total cost is TC=0.05Q.

a. Derive and graph each company’s reaction curve.

b. If the market is in a Cournot equilibrium, how much electricity does each company produce?

c. In equilibrium, what is the market price of electricity?

d. How much profit does each company earn?

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