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Question 2 Two firms produce the same good; yr denotes the output of firm 1 and yz the output of firm 2. Production is free up to a maximum determined by capacity constraints. Producing above that level requires heavy investment and is therefore exceedingly expensive. Specifically, the total cost functions faced by the firms are: Ci(y1) = 0 if y15 7 and Cr(y1) = 100 if y1 > 7 for firm 1 Ca(y2) = 0 if yz 2 for firm 2. Note that firm 2 faces a tighter capacity constraint. The market inverse demand function is p = 12 - y1 - y2. The firms choose their production levels simultaneously and independently. a) Write down the profit functions of the two firms. b) Compute their best reply functions. c) Determine the Cournot-Nash equilibrium production levels