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Consider an oligopolistic market with two firms. Each of them produces using a cost function given by c(q)=q^2.

The aggregate demand in the market is given by 1000−p.

Suppose that, in order to increase production, the government gives the firms a $100 per-unit produced subsidy. The cost of the subsidy is financed with an identical lump-sum tax on consumers.

QUESTION: What is the total level of production in the market?

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  1. 440

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