Suppose there are two identical firms A and B facing a market demand P=100-2Q. Both firms...

Suppose there are two identical firms A and B facing a market demand P=100-2Q. Both firms have the same marginal cost MC=4.

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

Expert Solution

Rahul Sunny answered 7 months ago

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

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