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Let the equation of the inverse demand curve for a Cournot duopoly be p = 88...

Let the equation of the inverse demand curve for a Cournot duopoly be p = 88 - 2 (q1 + q2). where q1 is the output of firm 1 and q2 is the output of firm 2. Firm i's cost function is c(qi) = 8qi .

(a)What are the Cournot duopoly equilibrium outputs, price and profit per firm for this market?

(b) Suppose that for a market with the inverse demand equation and cost functions of part (a), firm 1 is a Stackelberg leader and firm 2 is a Stackelberg follower. Find equilibrium outputs, price, profit per firm, consumer surplus, and deadweight welfare loss. Illustrate consumer surplus and deadweight welfare loss graphically.

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Rahul Sunny answered 2 years ago
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