Yоu will hаve 2 hоurs tо complete the exаm. There аre 4 major questions. Each question is worth 120 points. Make sure to answer all parts of all questions fully on the exam. Write your answers in sentences. Make sure to explain where your results come from. A final answer without a clear explanation of how you obtained it is a failing answer. In cases where your final answer may be incorrect, many of the logical steps you followed might well be correct. We will not be able to award you partial credit if you do not show the process through which you obtained your answer. Question One. Consider the market for palm tree trimming in a major metropolitan area in the Southwestern United States. There are two major firms, DesertTrees and ArborExperts. The demand for tree trimming is characterized by the following equation: P = 10000 – D – A, where D and A represent the number of tree trimmings produced in a season by DesertTrees and ArborExperts, respectively. DesertTrees has a marginal cost equal to average cost of $400 at all levels of output. ArborExperts has a marginal cost equal to average cost of $400 at all levels of output. (56 points) This is a Cournot situation where both choose quantity at the same time. In the Nash equilibrium identify: the quantities chosen by ArborExperts and DesertTrees, the market price that will result, and the profits received by ArborExperts and DesertTrees. Make sure to explain clearly how you are solving the problem and show your work. (56 points). ArborExperts and DesertTrees are in a Cournot setting and a third producer, Remover, has joined the industry. Remover also has a marginal cost equal to average cost of $400 at all levels of output. All three are choosing quantity simultaneously and the price is then determined after the quantities are set. Describe the new Nash equilibrium and explain why it develops that way. Analyze the situation and show: the quantities chosen by ArborExperts, DesertTrees, and Remover, the market price that will result, and the profits received by ArborExperts, DesertTrees, and Remover. Here is a hint to make your life easier. All three firms have identical costs and they face the same overall market demand. Would you expect them to each end up with the same quantity? Don’t use the hint until you have set up the first order conditions properly. (8 points) When moving from the situation with two firms to the situation with three firms in this case, in what direction does consumer surplus move? Explain. You don’t need a numerical answer.