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1. Suppose the inverse demand function for two firms in a homogeneous-product, Stackelberg oligopoly is given by P = 100 -3 (Q1 + Q2) and their costs are zero. Firm 1 is the leader, and firm 2 is the follower. What is firm 1s output

2. Suppose the inverse demand function for two firms in a homogeneous-product, Stackelberg oligopoly is given by P = 170 -3 (Q1 + Q2) and their costs are zero. Firm 1 is the leader, and firm 2 is the follower. What is firm 2s output

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Joshua Stredder
Joshua StredderLv10
28 Sep 2019
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Related questions

Now, suppose the inverse market demand function for a two-firm Stackelberg model is given by P=49-Q where Q=q1+q2 is the total output produced in the market, P is the market price, q1 is the quantity of output produced by firm 1, q2 is the quantity of output produced by firm 2. Firm 1 is the leader and firm 2 is the follower. The marginal costs of the two firms are MC1=2 and MC2=3.

1. What is the follower’s reaction function?

2. Determine the equilibrium output level for both the leader and the follower.

3. Determine the equilibrium market price.

4. Determine the profits of the leader and the follower assuming there are no fixed costs.

Now, suppose the inverse market demand function for a two-firm Stackelberg model is given by P=49-Q where Q=q1+q2 is the total output produced in the market, P is the market price, q1 is the quantity of output produced by firm 1, q2 is the quantity of output produced by firm 2. The firm is the leader and firm 2 is a follower. The marginal costs of the two firms are MC1=2 and MC2=3.

1. What is the follower’s reaction function?

2. Determine the equilibrium output level for both the leader and the follower.

3. Determine the equilibrium market price.

4. Determine the profits of the leader and the follower assuming there are no fixed costs.

Consider the following game. Firm 1, the leader, selects an output q1, after which firm 2, the follower, observes the choice of q1 and then selects its own output q2. The resulting price is one satisfying the industry demand curve P = 200 - q1 - q2. Both firms have zero fixed costs and a constant marginal cost of 10.

A. Derive the equation for the follower firm's best response function. Draw this equation on a graph with q2 on the vertical axis and q1 on the horizontal axis. Indicate the vertical intercept, horizontal intercept, and slope of the best response function.

B. Determine the equilibrium output of each firm in the leader-follower game. What are each firm's profits in the equilibrium?

C. Now let the two firms choose their outputs simultaneously. Compute the Cournot equilibrium outputs and industry price. Who loses and who gains when the firms play a Cournot game instead of the Stackelberg one?

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