Consider a model of Cournot competition as studied in class, with 2 firmsand a linear inverse demand function P(Q) = a – Q (where Q = q1 + q2 is the totalquantity produced by the two firms and a is a parameter). The firms have differentmarginal costs: c1 for Firm 1 and c2 for Firm 2.(a) Find the Nash equilibrium.(b) Assume Firm 1’s marginal cost is larger (c1 > c2). Which firm produces more inequilibrium? How do the quantities produced in equilibrium change if Firm 1 improvesits technology, leading to a slightly lower c1 (while c2 is unchanged)?(c) Find the total quantity produced and each firm’s profit in equilibrium. Describe whathappens to these when Firm 1 changes its technology as above.
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