Consider a market with two identical firms, Firm A and Firm B. The market demand is...

Consider a market with two identical firms, Firm A and Firm B. The market demand is ? = 20−1/2?, where ? = ?a +?b . The cost conditions are ??a = ??b = 16.

a) Assume this market has a Stackelberg leader, Firm A. Solve for the quantity, price and profit for each firm. Explain your calculations.

b) How does this compare to the Cournot-Nash equilibrium quantity, price and profit? Explain your calculations.

c) Present the Stackelberg and Cournot equilibrium output using a diagram.

d) The crude oil market can be described as a Nash-Cournot market, in which Saudi Arabia acts as Stackelberg leader. Do you agree with this statement?

Expert Solution

Rahul Sunny answered 8 months ago

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