1. Suppose the two firms cannot collude and instead compete in the Cournot Model

market demand Q = 18-P

cost C(Q)=1/2 Q^2).

a. Set up firm 1's profit maximization.

b. Solve for firm 1's best response function.

c. Solve for firm 1's quantity, firm 2's quantity, the equilibrium market quantity, and price.

d. Is this a Nash equilibrium?

2. Suppose that firm 1 has first mover advantage. (Market demand is Q=18-P and both firms have the same cost C(Q)=1/2 Q^2)

a.What do we call a market where two firms move sequentially?

b. Set up and solve for firm 1's output, firm 2's output, market output, and equilibrium price.