Suppose there are only two firms in the market, firm 1 and firm 2. They produce...

Suppose there are only two firms in the market, firm 1 and firm 2. They produce identical products. Firm 1 has a constant marginal cost where AC1 =MC1 =20, and firm 2 has a constant marginal cost AC2 =MC2 =8. The market demand function is given by Q = 100 - 0.5P.

a) Find the Cournot Nash Equilibrium price and quantity, write down the profits for each firm. (Use "q1" to represent output level for firm 1, and "profit1" to indicate the profit for firm 1, the same way to represent for firm 2

b)Now suppose firm 2 has the same marginal cost as firm 1's marginal cost. What is the profits for each firm under the Cournot model?

c)Next, suppose there are 3 firms in the market with AC =MC =20 . Assume that firm 2 and 3 continue to behave as Cournot (Nash) competitors, choosing their outputs simultaneously. However, firm 1 behave as a Stackelberg leader. Determine the Stackelberg equilibrium outputs and profits of the three firms in this case.

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Rahul Sunny answered 1 year ago

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