Two firms operate in the market. Firm 1's costs T() =
TC(q)=q, while Firm 2's costs T() = 3 . The market demand is given by (P) = 11 −P. Each firm has a maximum capacity of 8 units. Firm 2 behaves competitively, while Firm 1 chooses its quantity knowing that it has market power, understanding that the market price will be determined by the condition 1 + (p) = 11
Here (p) is Firm 2 's supply function. In equilibrium
a. Firm 1 produces 6 units, firm 2 produces 2 units, the price is P = 3.
b. Firm 1 produces 8 units, firm 2 produces 0 units, the price is P = 3.
c. Firm 1 produces 4 units, firm 2 produces 2 units, the price is P = 5.
d. Firm 1 produces 5 units, firm 2 produces 1 unit, the price is P = 5.
e. Firm 1 produces 7 units, firm 2 produces 1 unit, the price is P = 3.