Question: question is attached below Consider a duopoly in which both rms produce the same good and want to maximize prots. Each rm can choose how

question is attached below

Consider a duopoly in which both rms produce the same good and want to maximize prots. Each rm can choose how much to produce, qa- 2 0, at production cost qf. The demand curve is given by P = max{0, 50 362}, where Q = q1 + 9'2- (b) Now suppose that firm 1 chooses q1 first, firm 2 observes q1, and then chooses q2. (i) Solve for the unique SPE of the game, showing the steps involved. (10 POINTS) (ii) Explain why firms producing the Nash equilibrium quantities of the simultane- ous move game is not a SPE of this game. (5 POINTS)

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