Find the subgame perfect equilibrium

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Reference no: EM131806073

Two firms, i = 1, 2, produce the same good. Each firm i's cost of producing quantity q_i is given by C_i(q_i) = q_i².

The market demand is given by P_d(Q) = a - Q for all Q = q₁+q₂ ≤ a (with P_d(Q) = 0 for all Q>a).

(a) Assume that the two firms choose their quantities simultaneously. Find the Nash equilibrium.

(b) Assume that the two firms choose their quantities sequentially. Find the subgame perfect equilibrium.

Reference no: EM131806073

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