2. Suppose, as in the Capacity Expansion as a Credible Entry-Deterring Commitment model, Firm 1 has the option of buying some capacity prior to Firm 2's entry decision. Firm 2 observes Firm 1's capacity purchase and decides to enter or not. If entry occurs, the two firms compete in Cournot fashion by setting quantities simultaneously. a. Draw the reaction functions of the two firms on the same graph and compute the coordinates of the Best Nash Equilibrium and the Worst Nash Equilibrium (for the entrant). Hint: it should be analogous to Figure 12.5. b. How much capacity will Firm 1 buy? Will Firm 2 enter the market? If yes, how much output will it produce? Explain. 2. Suppose, as in the Capacity Expansion as a Credible Entry-Deterring Commitment model, Firm 1 has the option of buying some capacity prior to Firm 2's entry decision. Firm 2 observes Firm 1's capacity purchase and decides to enter or not. If entry occurs, the two firms compete in Cournot fashion by setting quantities simultaneously. a. Draw the reaction functions of the two firms on the same graph and compute the coordinates of the Best Nash Equilibrium and the Worst Nash Equilibrium (for the entrant). Hint: it should be analogous to Figure 12.5. b. How much capacity will Firm 1 buy? Will Firm 2 enter the market? If yes, how much output will it produce? Explain