Homework 4 (Chapter 13b) 1. Suppose there are only two firms in an industry. The two firms produce an identical product. The demand curve in this industry is given by P(q1 + q2) = 100 - q1 - 92. Firm 1's total cost of producing q1 units of output is C1(q1) = 10q1 and firm 2's total cost of producing q2 units of output is C2 (92) = 10q2. Each firm can choose to supply either 30 or 45 units of output. Complete the following payoff matrix first, and then use the extensive form to find the equilibrium in the Sequential Game where firm 1 chooses how much output it will supply before firm 2 chooses. Firm 2 92 = 45 92 = 30 Firm 1 91 = 45 91 = 30 K 1/1 > >1 1