1. The inverse demand for fax paper is given by P = 300- 4Q. There are two firms who

produce fax paper. Each firm has a unit cost of production equal to 60, and they compete

in the market in quantities. That is, they can choose any quantity to produce, and firm

1 chooses its quantity q1 first and rm 2 chooses q2 based on the observed choice of rm 1.

a. Find the quantity, price and profit in equilibrium. Is the result more efficient than

the simultaneous equilibrium?

b. Show that the result above doesn't hold if firm 2 can't really observe firm 1's choice.