(b) Is firm 2’s best response to ? Why or why not? If not, would firm 2 rather increase or decrease ?

5 Repeat Question 4 when actions are strategic complements.

6 Consider the reaction functions as displayed in Figure 5.8. What happens to each player’s Nash equilibrium strategy if player 1’s reaction function shifts to the right? How does this depend upon whether actions are strategic substitutes or strategic complements?