In: Economics

# Suppose there are two identical firms A and B facing a market demand P=280-2Q. Both firms...

1. Suppose there are two identical firms A and B facing a market demand P=280-2Q. Both firms have the same average and marginal cost AC=MC=40.

1. Assume that firms are Cournot-competitors (in quantity). Find the equilibrium price, quantity and profits.
2. Assume that firms are Stackelberg-competitors (in quantity) and Firm A is the leading firm. Find the equilibrium price, quantity and profits.
3. What general conclusions can you derive from the answers that you found in (a) & (b)?

## Solutions

##### Expert Solution

c) The stackleberg equilibrium price is less than the cournot equilibrium price. Consequently, the ouput for the leader is higher than that in case of cournot and the total profit of leader although is higher but the followers is lower than that in case of a cournot equilibrium. The leader in stackleberg duopoly earns more than in case of cournot duopoly.

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