2. Consider a homogeneous good oligopoly with 2 firms, where the market price P(Q) = 100-Q, with Q=q +92. (qi, the quantity produced by firm i, is a non-negative real number) Both firms have zero costs. Firm 1 seeks to maximize profits, i.e. P(Q)q. Firm 2 is unconcerned about profits; instead it seeks to minimze the (absolute) difference between its own output and that of firm 1. That is, firm 2's payoff is given by: V (91,92) (91-92). a) Draw a diagram to depict the best response functions of the two firms, i.e. firm 1's best response as a function of 92, and firm 2's best response as a function of q.Solve for a pure strategy Nash equilibrium of the game where the firms choose quantities (q;) simultaneously. b) Solve for the subgame perfect equilibrium of the game where firm 1 chooses 9. Firm 2 observes firm 1's choice and chooses 92. Explain why firm 1 has an incentive to choose differently in this equilibrium from the way it chooses in part (a). c) Solve for the subgame perfect equilibrium of the game where firm 2 moves first and chooses q2. Firm 1 observes firm 2's choice and chooses q. 2. Consider a homogeneous good oligopoly with 2 firms, where the market price P(Q) = 100-Q, with Q=q +92. (qi, the quantity produced by firm i, is a non-negative real number) Both firms have zero costs. Firm 1 seeks to maximize profits, i.e. P(Q)q. Firm 2 is unconcerned about profits; instead it seeks to minimze the (absolute) difference between its own output and that of firm 1. That is, firm 2's payoff is given by: V (91,92) (91-92). a) Draw a diagram to depict the best response functions of the two firms, i.e. firm 1's best response as a function of 92, and firm 2's best response as a function of q.Solve for a pure strategy Nash equilibrium of the game where the firms choose quantities (q;) simultaneously. b) Solve for the subgame perfect equilibrium of the game where firm 1 chooses 9. Firm 2 observes firm 1's choice and chooses 92. Explain why firm 1 has an incentive to choose differently in this equilibrium from the way it chooses in part (a). c) Solve for the subgame perfect equilibrium of the game where firm 2 moves first and chooses q2. Firm 1 observes firm 2's choice and chooses