2. An incumbent, firm 1 , is in a market with demand p=9Q. An entrant, firm 2 , observes the initial-period quantity chosen by the incumbent, and decides whether or not to enter. There is one period of Cournot competition post-entry. The entrant knows that the incumbent has a unit cost equal to 1 with probability .6, and equal to 3 with probability .4. Firm 1, of course, knows the actual value of its own cost. The entrant is known to have a unit cost equal to 2 . a) Solve for the post-entry equilibrium quantities and profits if firm 2 enters this market. Show this equilibrium on a graph. b) Use a graph to show the effect of increase in the probability that firm 1 is low cost on the equilibrium outcome, and provide a written explanation. c) If the cost of entry is 5 , solve for the smallest initial-period quantity that will deter entry (ql) given a separating equilibrium in which a firm is thought to be high cost if it produces any quantity less than ql. Show the determination of ql on a graph. d) Explain in words the effect of an increase in the probability that the incumbent is low cost on your answer. e) In this example do you think that firm 1 would attempt to deter entry or not? Explain. What if the entry cost is increased to 7? Explain