1. Fuji and Kodak produce identical film. The market demand forfilm is given by P = 8 - Q, where P is the price (in dollars perroll of film) and Q is the quantity (in hundreds of rolls). Eachfirm has the option of producing 150, 200, or 300 rolls of film ata constant marginal cost of $2 per roll with no fixed costs. Thefirms' possible profits for various outcomes are summarized in theaccompanying table.

		150 rolls	Kodak's Strategies 200 rolls	300 rolls
	150 rolls	Fuji gets $450	Fuji gets $375	Fuji gets $225
		Kodak gets $450	Kodak gets $500	Kodak gets $450
Fuji's	200 rolls	Fuji gets $500	Fuji gets $400	Fuji gets $200
Strategies		Kodak gets $375	Kodak gets $400	Kodak gets $300
	300 rolls	Fuji gets $450	Fuji gets $300	Fuji gets $0
		Kodak gets $225	Kodak gets $200	Kodak gets $0

(i)	If the two firms behave competitively (Bertrand pricecompetition), what will be the outcome of this game? Isthis outcome Pareto optimal for the firms?
(ii)	If the two firms merge and form a monopoly, what will be theoutcome of this game? Is this outcome Pareto optimal for thefirms?
(iii)	What is the Nash equilibrium for this game? Is it Pareto optimalfor the firms? How does it compare with the competitive andmonopoly outcomes?
(iv)	Suppose this game is played sequentially, with Fuji as the firstplayer. What will be the Stackelberg equilibrium? Is it Paretooptimal?