121. Two firms sell identical products and compete as Cournot (price-setting) competitors in a market with a

demand of = 150 - , with = 1 + 2. Initially, each firm has a constant marginal and average cost of

$3 per unit of output.

121.1. Compute each firm's best response function. Plot each of these functions on a graph with 1 on the

horizontal axis and 2 on the vertical.

121.2. Compute the Cournot equilibrium quantities.

121.3. Suppose that firm 1's cost rises to $4 per unit and firm 2's decreases to $2. On a graph, show how

this will change the best response functions. How will the equilibrium change according to the

changes you made on the graph