(11) Assume two firms with the same constant average and marginal cost, AC = MC = 5, facing the market demand curve Q₁ + Q₂ = 53 - P. Use the Stackelberg model to analyze what will happen if one of the firms makes its output decision before the other. a. Suppose Firm 1 is the Stackelberg leader (i.e., makes its output decisions befor Firm 2). Find the reaction curves that tell each firm how much to produce in terms of the output of its competitor. b. How much will each firm produce, and what will its profit be? Compare your results to the Cournot Equilibrium. (12) Suppose all firms in a monopolistically competitive industry were merged into one large firm. Would that new firm produce as many different brands? Would it produce only a single brand? Explain.
(11) Assume two firms with the same constant average and marginal cost, AC = MC = 5, facing the market demand curve Q₁ + Q₂ = 53 - P. Use the Stackelberg model to analyze what will happen if one of the firms makes its output decision before the other. a. Suppose Firm 1 is the Stackelberg leader (i.e., makes its output decisions befor Firm 2). Find the reaction curves that tell each firm how much to produce in terms of the output of its competitor. b. How much will each firm produce, and what will its profit be? Compare your results to the Cournot Equilibrium. (12) Suppose all firms in a monopolistically competitive industry were merged into one large firm. Would that new firm produce as many different brands? Would it produce only a single brand? Explain.
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 1E
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