Consider this cost function: C(qt) = (1/2) * (qt)2 - (1/2) * qt * (past production function}. There are two production periods and the firm produces at P=16 for both periods. In the first period, past production function =0. In second period, past production function = period 1 production.

i) What is the profit maximizing quantity to produce in period 1 and 2? What are the total profits?

II) What happens if the firm chooses both its production levels for period 1 and 2 in period 1? (to maximize profits again) Why are the answers different?