Firms 1 and 2 compete in a Cournot duopoly. If firm 2 adopts a strategy that raises firm 1's marginal cost:

firm 1 will increase its output.

firm 2 will gain market share.

firm 2 will enjoy lower profits.

All of the statements associated with this question are correct.

Answer:

If firm 1's marginal cost increases compared to its marginal revenue then its marginal profit will declining thereby diminishing its total profit as well.This would eventually lead to lower production level and market share for firm 1 and firm 2 would ideally capture more of the consumer demand in the market.Thus,firm 2's market share would increase consequently.

Hence,the correct answer is option 2 or firm 2 will gain market share.