Consider a duopoly where two firms X and Y compete over quantities. They make their output...

Consider a duopoly where two firms X and Y compete over quantities. They make their output decisions simultaneously. The firms have the same cost function which reads:

TCi = 100+50qi

where TCi are total cost in dollar and qi is the quantity produced by each firm. The total output in the industry is given by Q = qx +qy , the inverse demand function reads:

P(Q) = 350?2Q

1.Calculate the reaction functions of both firms and find the optimal level of output in the Cournot-Nash equilibrium.

2.How much will firm X produce if Y produces 30 units?

3.Illustrate your solution in a suitable graph.

4.If firm 1 chooses quantity first and firm 2 choose quantity after observing firm 1’s choice, find the Stackelberg leader equilibrium.

5.If the two firms collude, find the price and outputs.

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Expert Solution

Rahul Sunny answered 2 years ago

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