Find the stackelberg equilibrium

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Reference no: EM13831929

Two identical firms, Firm 1 and Firm 2, compete in quantity in a market where inverse demand is P(Q) = 100 − Q and there exists a constant marginal cost of 20 per unit.

(a) Find the Cournot equilibrium

i. Find the response functions q1(q2) and q2(q1)

ii. Plot the response functions on a single graph with the axes labeled iii. Find the quantities ˆq1 and ˆq2 corresponding to the intersection of the response functions

(b) Find the Stackelberg equilibrium

i. If Firm 1 moves first, what is the profit maximizing level of production, q ∗ 1?

ii. Find Firm 2’s level of production, q ∗ 2 , given what you found in part i.

Reference no: EM13831929

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