capacity competition game is given by K. = K, = 10.286 Show this equilibrium in the Best Response Function diagram. Calculate F1 profits under Cournot competition (d) Suppose that Firm 1 is the incumbent and Firm 2 is the potential entrant. Determine the subgame-perfect equilibrium capacities and the profits of the two firms in the sequential-move game. (e) Show that the general equation (at any given profit level it ) for the isoprofit curve for Firm 1 for combinations of (K, K, ) is given by: K , = 12 - -K 2 + 7 ( 24 - 2 K 2 ) 2 - 47 , 2 (f) In the diagram of part (i) sketch (using three points) the isoprofit function for F1 at the Cournot level of profits. Show your calculations for these three points. Note that the Cournot isoprofit curve is at a maximum at the Cournot Nash Equilibrium of the game. Draw the Cournot isoprofit curve in the diagram using these points. (g) In the diagram of part (i) sketch (using three points) the isoprofit curve for Firm 1 for the subgame-perfect equilibrium level of profits. To graph the Stakelberg isoprofit function you need three points. Note that the Stakelberg isoprofit curve is NOT at a maximum at the Stakelberg Nash Equilibrium of the game. It is just tangent to the BRF2 at the Stakelberg Nash equilibrium point. Draw the Stakelberg isoprofit curve in the diagram using these points. (h) What strategy should the firm use to increase profits? Explain using the isoprofit curves