Two firms compete in selling homogeneous goods. They choose their output levels q1 and q2 simultaneously and face demand curve P=80-6Q, where Q=q1+q2. The total cost function of firm 1 is C1=8q1 and the total cost function of firm 2 is C2=32q2+2/3. a) Find and draw the reaction curves of the two firms. b) Compute equilibrium quantities, price and profits. Suppose now that firm 2, thanks to a technological innovation, becomes more efficient. The new total cost function of firm 2 is C2= 8q2 c) Compute the new equilibrium quantities, price and profits.

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