SGP D. Stackelberg competition, related to MicroTh 15.7 Two firms operate in a mar- ket with demand curve p = a - bqand constant marginal costs c satisfying a > c > 0. Firm 1 goes first, picking q, firm two observes the production decision, and goes second, picking q(q). Profits are The (, 4) = qla -(q + q))-cq and 14 (q, q) = qla -(q+ q(q)-cq. 1. Find the best response curve, q (q, ), for firm 2. 2. Supposing that 2 responds to q by producing q (q ), give the solution to 1's problem, max, so (q) =q(a-(q +q(q) -cq. And give the Stackelberg outcome, qs = (q, q(q)) 3. Compare the equilibrium profits and social surplus for this leader-follower game, known as the Stackelberg model, to the monopoly outcome. 4. Compare the equilibrium profits and social surplus for this case, known as the Stackelberg model, to the competitive outcome, i.e. whenp = c- 5. Show that there a first mover advantage in this game. 6. Suppose that 2, instead of playingq (q), the played the strategy q (q ) = q, and also suppose that 1 knows that 2 is playing that strategy. What is 1's best response? 7. Compare the results of this problem to the results of MicroTh 8.3 that you solved above