Q1-Return to the case of the two oil change producers Oil Can Henry’s (OCH) and Jiffy...

Q1-Return to the case of the two oil change producers Oil Can Henry’s (OCH) and Jiffy Lube (JL). Recall the inverse market demand for oil changes: P = 100 – 2Q

where quantity is measured in thousands of oil changes per year, representing the combined production of O and G; Q = q_O + q_G; and price is measured in dollars per change. OCH has a marginal cost of $12 per change, and JL has a marginal cost of $20.

Answer the following questions:

a-Suppose the market is a Stackelberg oligopoly and OCH is the first mover. How much does each firm produce? What will the market price be? How much profit does each firm earn?

b-Now suppose JL is the first mover. How much will each firm produce, and what is the market price? How much profit does each firm earn?

Expert Solution

Rahul Sunny answered 2 years ago

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