Question

Refer to a duopoly market in which the inverse demand function is given by P = 96 − Q. Firm 1's cost function is c(q₁) = 6q₁ + 300, and firm 2's cost function is c(q₂) = 6q₂ + 600 (such that each firm has MC = 6).

Q1: The outputs of the two firms in Cournot-Nash equilibrium will be:

1) q₁ = 45 and q₂ = 0.

2) q₁ = 30 and q₂ = 30.

3) q₁ = 45 and q₂ = 22.5.

4) q₁ = 28 and q₂ = 28.

5) None of the other answers is correct.

Q2: The profits of the two firms in Cournot-Nash equilibrium will be:

1) π₁ = 600 and π₂ = 300.

2) None of the other answers is correct.

3) π₁ = 300 and π₂ = 600.

4) π₁ = 900 and π₂ = 900.

5) π₁ = 2,025 and π₂ = 0.

Q3: The outputs of the two firms in Stackelberg equilibrium, with firm 2 as the leader, will be:

1) q₁ = 45 and q₂ = 22.5.

2) q₁ = 0 and q₂ = 45.

3) q₁ = 22.5 and q₂ = 45.

4) q₁ = 45 and q₂ = 0.

5) None of the other answers is correct.

Answer 1