Two firms supply coffee at market

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Two firms supply coffee at a market. Firm 1 has lower marginal costs than firm 2, reflected by constant marginal costs c1 < c2. Market demand for coffee is P = aQ, where Q = Q1 + Q2.

(i) If these firms behave like Cournot competitors, what would be each firm's ouput? What is the market price?

(ii) If Firm 1 moves first, followed by firm 2, what would be the Stackelberg equilibrium (market price, and each firm's individual outputs)? What is firm 1's equilibrium profit?

Reference no: EM131009762

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