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Question 3 [word limit: 750]- Consider a pharmaceutical market served by two firms, firm 1 and firm 2. The two firms produce vaccines and compete to maximise own profits. Suppose that the demand of vaccines is given by ~ p = a-bQ+ where Q = q1 + 92. Suppose that the two firms incur production costs equal to C1(q1) = C191" C2 (92) = C292+ a. Suppose that the two firms move simultaneously, c1 = C2 = c and a > c > 0. Derive and describe the Cournot/Nash equilibrium and provide a graphical representation of the best response functions. [10 marks] b. Suppose that the two firms were considering a merger. Would this be beneficial in terms of welfare? Provide economic intuition. [15 marks]~ c. Suppose that the government decides to partially nationalise firm 1. The presence of the government in the board of firm 1 induces firm 1 to target the joint maximisation of own profits and consumer surplus. Assuming that firm 2 continues to target the maximisation of own profits, derive and describe the equilibrium, and compare it to the equilibrium that you have found in part a. [25 marks]~