Cournot duopolists Firm 1 and Firm 2 face inverse demand P = 24 - Q and each has a marginal cost of 6. Firm 2 revamps it's production process, allowing to produce at marginal cost of 3 (while Firm 1 still has MC of 6). How does this affect Firm 1?

Its output is unchanged, but it's profits fall by 6.

Its output and profits are unchanged.

Its output drops by 1 and its profits fall by 11.

2 points

Competing duopolists both have MC = 1 (and no fixed costs) and face inverse demand

p = 2 - 2Q, where Q = q₁+ q₂is the total output of both firms. What is Firm 2's Cournot reaction function, q₂*(q₁)?

q_2*(q₁) = (1- q₁)/3

q_2*(q₁) = (1- 2_q1)/4

q_2*(q1) = (1- 2_q1)/3