Initially there is one firm in the market for widgets. The firm has cost function C(Q)=3Q...

Initially there is one firm in the market for widgets. The firm has cost function C(Q)=3Q and marginal cost function MC(Q)=3. Market demand is given by P(Q)=20-3Q.

1. What price will the firm charge? What quantity will it sell?

2. Now a second firm enters the market. This firm has an identical cost function to the incumbent firm. What is the Stackelberg equilibrium output for each firm if firm 2 chooses its quantity second?

3.What are the profits earned by each firm in the Stackelberg equilibrium?

4.Which market do consumers prefer: monopoly or Stackelberg duopoly? Why?

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Expert Solution

Rahul Sunny answered 1 year ago

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