Suppose there are two firms, Firm A and Firm B that produce identical products in a...

Suppose there are two firms, Firm A and Firm B that produce identical products in a duopoly. Firm A has a constant marginal cost of production, MC_A = 10 and Firm B has a constant marginal cost, MC_B = 14. The market demand curve for the the product is given by P = 42 − 0.004Q where Q = (Q_A + Q_B).

(a) Suppose that Firm A has a first-mover advantage. That is, Firm A is able to choose output before Firm B.

(i) Calculate the equilibrium quantities. Show your work.

(ii) Calculate the price resulting from the equilibrium quantities.

(b) Now suppose that the two firms compete by simultaneously choosing how much output to

produce.

(i) Calculate the Cournot Nash Equilibrium quantities. Show your work and the steps you are following along the way.

(ii) Calculate the price resulting from the Nash equilibrium quantities.

Solutions

Expert Solution

Rahul Sunny answered 6 months ago

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