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Two fi?rms compete in a duopoly market. Each fi?rm chooses a quantity and the price in the market is determined from the following inverse demand function
P = 240 -0.5Q where Q = q1 + q2. Each ?firm has constant marginal costs with c1 = c2 = $60.
(a) If fi?rms choose output simultaneously, ?find the Best Response Function for fi?rm 2.
(b) If the fi?rms choose output sequentially, with Firm 1 setting output before Firm 2 (Firm 2 is able to observe the choice of Firm 1 before making its own choice),describe a strategy for Firm 1 and describe a strategy for Firm 2.
(c) Find the Subgame Perfect Nash Equilibrium (the Stackelberg Equilibrium) to the sequential game.
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