a. Two horizontally differentiated producers of diesel railroad engines-one located in the U.S. and other located in Europe-compete in European market as Bertrand price competitors. The U.S. manufacturer lobbies the U.S. government to give it an export subsidy, the amount of which is directly proportional to the amount of output the firm sells in the European market.
b. A Cournot duopolistic issues new debt to repurchase shares of its stock. The new debt issue will preclude the firm from raising additional debt in the foreseeable future, and is expected to constrain the firm from modernizing existing production facilities