Question 1 quantity produced by firms 1,2 and let the inverse demand given by p = 12 – q1- q2 where p = price of the good. Both firms have unit cost 2. Assume each firm can produce only one of the following levels of quantity: 2, 4 or 5. Consider a Cournot duopoly with two firms 1 and 2. Let qı and q2 be Table 1: Profit and best response of firm 1 q2 = 4 q2 = 2 12 92 = 5 qi= 2 qi = 4 qi = 5 Table 1 presents the profit of firm 1 and its best response to specific q2. The profits at q2 = 2 are shown and best response is identified by *. Filling up the missing values, identify best response of firm 1 to other values of q2. 16* 15 Table 2: Profit and best response of firm 2 q2= 2 12 92 = 4 16* 92 =5 15 qi = 2 qi=4 qi = 5 Table 2 presents the profit of firm 2 and its best response to specific qı. The profits at qı = 2 are shown and best response is identified by *. Filling up the missing values, identify best response of firm 2 to other values of q1. Table 3: Profits and best responses of both firms q2= 4 92=2 92=5 q1= 2 91=4 q1 = 5 Using the information from Tables 1,2, present the profits of firms in Table 3 together with best responses. For each cell, write the profit of firm 1 in the left box and profit of firm 2 in the right box. Then identify all Nash Equilibrium (NE) of this Cournot duopoly.

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