Firms A and B produce identical goods which have average costs (and marginal costs) given by...

Firms A and B produce identical goods which have average costs (and marginal costs) given by cA = 6 and cB = 3, respectively. The demand function for industry output is given by Q = 13 − p, where p is the price of output.
1. Suppose the firms behave as Cournot competitors, determine the equilibrium price and output levels of the two firms.
2. Suppose firm A can successfully commit to a certain output level before firm B’s decision on how much to produce (`a la Stackelberg). Find the equilibrium output levels of the two firms.
3. Suppose they engage in Bertrand competition, find the equilibrium price and output levels of the two firms.

Expert Solution

Rahul Sunny answered 2 years ago

Consider a perfectly competitive market where all firms have identical long-run marginal costs given by LRMC...

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Firms A and B produce identical goods which have average costs (and marginal costs) given by...

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