Question 3 Lynn has developed a new form of exercise machine. a) Demand is given by p=56-2Q and her cost function is given by C(Q)=100+8Q where p is price in the local currency and Q the number of machines sold. What is her profit maximizing quantity and how high are profits if she acts as a monopolist? (5 p) b) Voytek contemplates entering this market. If he starts producing this same machine he and Lynn will be acting as Cournot competitors producing homogeneous products and the demand function is still given by p=56-2Q but Q is now given by qvtqu. Assume that Voytek's cost function is given by C(qv)=50+8qv and that Lynn's cost function as before is given by C(qL)=100+8qL. What are equilibrium quantities and how high is price now? (9 p) c) Assume that demand and costs are as in b) but now assume that Lynn sets quantity first and Voytek decides quantity only after having observed how much Lynn produces. What are equilibrium quantities and price now? Use a graph with reaction functions to illustrate your analysis and discuss any difference from b) in terms of quantities and prices. (9