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2. We went over a question in class where there were two firms competing in a Cournot-type setting, and the marginal cost of each firm
2. We went over a question in class where there were two firms competing in a Cournot-type setting, and the marginal cost of each firm was 20. The market inverse demand curve was: P(Q) = 120 -20Q The reaction functions of the firms were: q1 = 2.5 - 0.5q2 and q2 = 2.5 - 0.5q1 Suppose the marginal cost of firm 2 increases. What needs to be the new reaction function of firm 2 for it to produce 0 units in equilibrium? Show your work both graphically and numerically. (Hint: Find where the reaction functions need to intersect for q2 to equal 0.)
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