Consider a linear Cournot duopoly with inverse demand curve p = a - Q where Q is market quantity. Suppose fi rm 1's marginal cost is c_1 = 1, and fi rm 2's marginal cost is c_2 = 2 (and a > 4).
(a) Find the Nash equilibrium in pure strategies.
(b) What does iterative strict dominance say about the game?
(c) What happens in Nash equilibrium if a = 3 ?