1. Consider a one-shot game where two firms (firm 1 and firm 2) produce a homogenous product and choose output simultaneously. The market's inverse demand function is given by P=42-2Q, where P is the market price and Q equals total output (q1+q2). Costs for both firms are given by C=2Q, indicating marginal cost is constant and equal to $2/unit. Figure 2 contains an illustration of a firm's best-response function for the game.

c. Illustrate the effect of an increase in firm one's marginal cost on its best-response function and the Nash equilibrium. Explain how this increase in firm one's marginal costs affect firm two's profit-maximizing output, it's market share, and profit.