Question

The market demand curve for a pair of Cournot duopolists is given as: P = 36 - 3Q, (Q = Ql + Q2). The constant per unit marginal cost is 12 for each duopolist.

12) What is the Cournot equilibrium price?

a) 0

b) 10

c) 18

d) 20

e) None of the above

13) What is the Cournot equilibrium quantities for each firm?

a) 1.33

b) 2.66

c) 18.14

d) 20

e) None of the above

14) What is the Cournot equilibrium profits?

a) 0

b) 12.23

c) 18

d) 20

e) None of the above

15) Suppose the above game is played as a Stackelberg Game. What is the price now?

a) 0

b) 10

c) 18

d) 20

e) None of the above

16) What is the profit of the leader?

a) 0

b) 10

c) 18

d) 20

e) None of the above

Answer 1

Answer)

Image 1 is solution of Cournot. Image 2 is solution of Stackelberg.

In Stackelberg, firm 1 is Followers, firm 2 is Leader.

In Cournot,

P = 20

Q1 = Q2 = 2.66

Profit 1 = Profit 2 = 21.28

In Stackelberg,

Firm 1 is follower, firm 2 is Leader.

P= 18

Q1 = 2

Q2 = 4

Profit 1 = 12

Profit 2 = 24

12) Cournot equilibrium price is 20.So, option D is correct.

13) Cournot equilibrium quantity = 2.66 . So, option B is correct.

14) Cournot Profits are 21.28 . So, the correct option is none of these(option E).

15) Price in Stackelberg is 18. So, the correct option is C.

16) Profits of leader in Stackelberg is 24.So, the correct option is Option E(None of the above).