Consider an economy with market demand Q(p)=20-2p. There are two identical firms in this economy with constant marginal costs equal to 1 and no fixed costs. Assume that firms set prices and follow a Bertrand model to do so.
What are the price, quantities, and profits for each firm in equilibrium? Assume that the government charges a per unit tax of $1.
What are the price, quantities, and profits for each firm in equilibrium?
Calculate the deadweight loss of the tax