Consider the following game. Firm 1, the leader, selects an output ?1, after which firm 2, the follower, observes the choice of ?1 and then selects its own output ?2. The resulting price is one satisfying the industry demand curve ? = 200 − ?. Both firms have zero fixed costs and a constant marginal cost of 60. Determine the equilibrium output of each firm in the leader-follower game. What are firm 1’s profits in the equilibrium?

Consider the following game. Firm 1, the leader, selects an output ?1, after which firm 2, the follower, observes the choice of ?1 and then selects its own output ?2. The resulting price is one satisfying the industry demand curve ? = 200 − ?. Both firms have zero fixed costs and a constant marginal cost of 60. Determine the equilibrium output of each firm in the leader-follower game. What are firm 1’s profits in the equilibrium?

Microeconomic Theory

12th Edition

ISBN:9781337517942

Author:NICHOLSON

Publisher:NICHOLSON

Chapter15: Imperfect Competition

Section: Chapter Questions

Problem 15.4P

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Two firms A and B produce an identical product (Note: Industry Output = Q). The firms have to decide how much output qA and qB (Note: qA = Firm A Output; qB = Firm B Output) they must produce since they are the only two firms in the industry that manufacture this product. Their marginal cost (MC) is equal to their average cost (AC) and it is constant at MC = AC = X, for both firms. Market demand is given as Q = Y – 2P (where P = price and Q = quantity). Select any value for X between [21 – 69] and any value for Y between [501 – 999]. Using this information, calculate the Industry Price, Industry Output, Industry Profit, Consumer Surplus and Deadweight Loss under each of the following model: (A) tacit collusion model
Two firms A and B produce an identical product (Note: Industry Output = Q). The firms have to decide how much output qA and qB (Note: qA = Firm A Output; qB= Firm B Output) they must produce since they are the only two firms in the industry that manufacture this product. Their marginal cost (MC) is equal to their average cost (AC) and it is constant at MC = AC = X, for both firms. Market demand is given as Q = Y – 2P (where P = price and Q = quantity). Select any value for X between [21 – 69] and any value for Y between [501 – 999]. Using this information, calculate the Industry Price, Industry Output, Industry Profit, Consumer Surplus and Deadweight Loss under each of the following models; 1) Bertrand model
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