Reference no: EM13182711
Suppose there are two firms in a market who each simultaneously choose a quantity. Firm 1's quantity is q1, and firm 2's quantity is q2. Therefore the market quantity is Q = q1 + q2. The market demand curve is given by P = 60 - 4Q. Also, each firm has constant marginal cost equal to 12. There are no fixed costs.
The marginal revenue of the two firms are given by:
MR1 = 60 - 8q1 - 4q2
MR2 = 60 - 4q1 - 8q2.
A) How much output will each firm produce in the Cournot equilibrium?
B) What will be the market price of the good?
C) How much profit does each firm make?
D) What is the consumer surplus in the market?
(Stackelberg Duopoly) For parts E - H, use the same demand and cost functions as given above. Now suppose Firm 1 chooses its quantity, q1, first and then Firm 2 chooses its quantity, q2.
E) How much output will each firm produce in the Stackelberg-Nash Equilibrium?
F) What will be the market price of the good?
G) How much profit does each firm make?
H) What is the consumer surplus in the market?
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