Two rms sell identical products and compete as Cournot (price-setting) competitors in a market with a demand of p = 150 - Q. Each rm has a constant marginal and average cost of $3 per unit of output. Compute each rm's best response function. Plot each of these functions on a graph with q1 on the horizontal axis and q2 on the vertical. Compute the Cournot equilibrium quantities.

Now suppose that rm 1's cost rises to $4 per unit and rm 2's decreases to $2. On a graph, show how this will change the best response functions. How will the equilibrium change according to the changes you made on the graph?