production decision

[Var1995]

the answer is (a). so by producing more firm 1 wants firm 2 to leave the market. but if firm 2 decides to remain even if it's marginal cost is higher, will it not lead to reduction in the price level?

[Dr. Strange]

For simplicity take demand curve as p=a-b*(q1+q2)
take mc of 1=b
mc of 2 is 2b
profit of 1=(a-b*(q1+q2))*q1-(b*q1)
profit of 2 =(a-b*(q1+q2))*q2-(2b*q2)
maximise both profits simultaneously,
you will get q1-q2=1 so q1>q2