Karmania automobiles. There are two auto producers in Karmania, F1 and F2. The cars they produce are essentially identical. The market inverse demand curve is given by p = a b Q, where p is price (in thousands of dollars); Q market output (in thousands of units); and a and b are parameters. It is estimated that a = 22 and b = .1. Both F1 and F2 have a marginal cost of 10 thousand dollars per car.

Competition in the Karmania auto market works as follows. At the beginning of each year, both firms simultaneously and independently decide how many cars to produce. Then the market price adjusts so that supply equals demand.

(a)Determine F1's best response mapping.

(b)Determine the equilibrium of the game played between F1 and F2.

(c)Suppose that an increase in incomes shifts demand to p = 25 0.1 Q. What do you expect will happen to price and the number of cars sold?