Suppose that there are two firms (Firm 1 and Firm 2) that supply oil in a market. Demand for oil in the market is characterised by p = 7,000 Q, where Q = q1 + q2 is the total quantity in tones supplied and p is the price per tone. The per unit cost of production is constant and equal to 400. The two firms are Cournot competitors, that is, they simultaneously and independently select the amount of oil they produce.

a) Write down the profit of each firm as a function of the amount of oil it produces and the amount of oil the other firm produces.

b) Find the BR function (i.e., reaction curve) of each firm.

c) Find the Cournot equilibrium quantities.

d) Draw the BR functions in the same graph where the horizontal axis depicts the amount of oil produced by Firm 1 and the vertical axis depicts the amount of oil produced by Firm 2.