Question: . Consider two countries denoted by i = 1 , 2 , each of which has one firm producing a homogenous product only for export,

. Consider two countries denoted by i =1,2, each of which has one firm producing a homogenous product only for export, to be sold in the world market. The worlds demand for the product is given by where . The pre-innovation unit cost of each firm is , where . Let denote the amount of R&D sponsored by the government in country i. When government i undertakes R&D, the unit production cost for the firm producing in country i is reduced to . The total cost to government i of engaging in R&D at level is : (a) Assuming that the firms play a Cournot quantity game in the world market for given R&D levels, calculate the equilibrium profit level for firm i.[50% of marks](b) Assuming that country is welfare is given by the sum of the profit earned by firm i minus the cost of R&D, calculate the unique Nash equilibrium levels of R&D in country i.[50% of marks]

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