2.Two firms sell identical products and compete as Cournot (quantity-setting) competitors in a market with a demand ofp(Q)=150 - Q. Initially, each firm has a constant marginal and average cost of 3 per unit of output.

a) Compute each firm's best response function. Plot each of these functions on a graph with q1on the horizontal axis and q2on the vertical.

b) Compute the Cournot equilibrium quantities and profits.

c) 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 (quantities and profits) change according to the changes you made on the graph?

d) Suppose that the duopolists collude when costs are 3 per unit of output. Find their joint profit maximizing price, output and profit; find each firm's output and profit.