1. Consider two duopolists who each have a constant marginal cost c₁ =c2 = 3 and face inverse demand P 15-Q,where Q Q1 + Q2 is the total output of both firms. = 1. Find the Cournot equilibrium quantity for each firm, the resulting market price, and the profits for each firm. 2. Find the Stackelberg equilibrium quantities for each firm, and the price, and the profits for each firm supposing that Firm 1 is the industry leader. 3. Suppose that Firm 2 figures out a way to lower its marginal cost to c₂ =0 while firm 1 still has a marginal cost equal to 1: c₁ =3. How does this affect the Cournot equilibrium quantities, price, and profits? 4. How does this affect the Stackelberg equilibrium (with Firm 1 still as the leader) quantities, price, and profits?

1. Consider two duopolists who each have a constant marginal cost c₁ =c2 = 3 and face inverse demand P 15-Q,where Q Q1 + Q2 is the total output of both firms. = 1. Find the Cournot equilibrium quantity for each firm, the resulting market price, and the profits for each firm. 2. Find the Stackelberg equilibrium quantities for each firm, and the price, and the profits for each firm supposing that Firm 1 is the industry leader. 3. Suppose that Firm 2 figures out a way to lower its marginal cost to c₂ =0 while firm 1 still has a marginal cost equal to 1: c₁ =3. How does this affect the Cournot equilibrium quantities, price, and profits? 4. How does this affect the Stackelberg equilibrium (with Firm 1 still as the leader) quantities, price, and profits?

Managerial Economics: Applications, Strategies and Tactics (MindTap Course List)

14th Edition

ISBN:9781305506381

Author:James R. McGuigan, R. Charles Moyer, Frederick H.deB. Harris

Publisher:James R. McGuigan, R. Charles Moyer, Frederick H.deB. Harris

Chapter12: Price And Output Determination: Oligopoly

Section: Chapter Questions

Problem 3E

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