In a homogeneous product duopoly, each firm has constant marginal cost equal to 10. The market inverse...

In a homogeneous product duopoly, each firm has constant marginal cost equal to 10. The market inverse demand curve is p = 250 – 2Q where Q = q₁ + q₂ is the sum of the outputs of firms 1 and 2, and p is the price of the good. Marginal and average cost for each firm is 10.

(a) What are the Cournot and Bertrand equilibrium quantities and prices in this market? In a two period version of the model in which each firm can observe the other’s behaviour in the first period, will the firms collude?

(b) Find the outcome for the Stackelberg model, assuming firm 1 is the “leader” (i.e., moves first) and firm 2 is the “follower” (i.e., moves second).

Expert Solution

Rahul Sunny answered 1 year ago

In a homogeneous product duopoly, each firm has constant marginal cost equal to 10. The market...

In a homogeneous product duopoly, each firm has constant marginal cost equal to 10. The market inverse demand curve is p = 250 – 2Q where Q = q1 + q2 is the sum of the outputs of firms 1 and 2, and p is the price of the good. Marginal and average cost for each firm is 10. Word limit per question: 400 words (200 words per part of question) (a) What are the Cournot and Bertrand equilibrium quantities...

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