Two firms 1 and 2 produce biodiesel energy. They compete on quantities. Their

demand has the following form P = 20 3Q, where P is the energy price, and Q

represents the total quantity produced by the two firms.

Firm 1 has been on the market for long and has more experience. It can produce

energy at a lower cost than its competitor 2. The two cost functions are

c1(q1) = 3q1 + 2

c2(q2) = 4q2 + 3

The model has two stages: Firm 1 chooses its quantity q1 first, and then Firm 2

chooses its quantity q2.

Find the equilibrium of the model (quantities, price, and profits). Detail your

methodology. Comment your results.