Question

Questions 1 through 3 refer to a duopoly market in which the inverse demand function is given by P = 96 − Q. Firm 1's cost function is c(q₁) = 6q₁ + 300, and firm 2's cost function is c(q₂) = 6q₂ + 600 (such that each firm has MC = 6).

Q1.The outputs of the two firms in Cournot-Nash equilibrium will be:

a.q₁ = 45 and q₂ = 0.

b.q₁ = 45 and q₂ = 22.5.

c.q₁ = 28 and q₂ = 28.

d.None of the other answers is correct.

e.q₁ = 30 and q₂ = 30.

Q2.The profits of the two firms in Cournot-Nash equilibrium will be:

a.π₁ = 300 and π₂ = 600.

b.None of the other answers is correct.

c.π₁ = 900 and π₂ = 900.

d.π₁ = 2,025 and π₂ = 0.

e.π₁ = 600 and π₂ = 300.

Q3.The outputs of the two firms in Stackelberg equilibrium, with firm 2 as the leader, will be:

a.q₁ = 45 and q₂ = 22.5.

b.q₁ = 22.5 and q₂ = 45.

c.q₁ = 0 and q₂ = 45.

d.q₁ = 45 and q₂ = 0.

e.None of the other answers is correct.

Answer 1