Consider chemical fertilizer market in an isolated village where suppliers are limited to two at most. Let q1 and q2 denote the quantities of homogeneous fertilizer produced by firms 1 and 2 respectively. Let P(Q) = 30 – Q be the market-clearing price when the aggregate quantity on the market is Q (= q1 + q2). (More precisely, P(Q) = 30 – Q for Q < 30, and P(Q) = 0 for Q ≥ 30.) Assume that the total cost for firm i (i = 1 and 2) of producing qi is Ci (qi) = 6qi. That is, there are no fixed costs for both firms and the constant marginal cost is common to two firms at 6.

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