-
the profit maximizing output of Firm 2 taking Q1 as given.
-
All right, so we've done the second step for this already,
-
we already know what Firm 2's going to do.
-
Of course, the additional step here now is that
-
Firm 1 knows that Firms 2's going to do it.
-
Firm 1's going to move first and Firm 1 knows
-
that after she sets her quantity Q1,
-
Firm 2 will respond by choosing her corresponding quantity,
-
which is the best response to it.
-
So if Firm 1 knows that if Firm 1 were to choose this quantity,
-
then Firm 2 will respond by choosing this quantity,
-
and Firm 1 knows that if she chose this smaller quantity,