(4) Firm l's cost function is C1(qı) = 41 and firm 2's cost function is C2(q2) = 2q2. Consider a duopoly selling in a market with inverse demand function p = 12-q. (a) Assume firms choose output simultaneously (Cournot model). Compute the equilibrium quantities and the market price in a Nash equilibrium. (b) Now assume that firm 1 is a leader and chooses its output q1 first. Then, firm 2 chooses its output q2 after observing q1 (Stackelberg model). Find a subgame-perfect Nash equilibrium of this game. Carefully specify the strategies for firm 1 and firm 2. What quantities are produced in equilibrium and what is the market price in equilibrium?

(4) Firm l's cost function is C1(qı) = 41 and firm 2's cost function is C2(q2) = 2q2. Consider a duopoly selling in a market with inverse demand function p = 12-q. (a) Assume firms choose output simultaneously (Cournot model). Compute the equilibrium quantities and the market price in a Nash equilibrium. (b) Now assume that firm 1 is a leader and chooses its output q1 first. Then, firm 2 chooses its output q2 after observing q1 (Stackelberg model). Find a subgame-perfect Nash equilibrium of this game. Carefully specify the strategies for firm 1 and firm 2. What quantities are produced in equilibrium and what is the market price in equilibrium?

ENGR.ECONOMIC ANALYSIS

14th Edition

ISBN:9780190931919

Author:NEWNAN

Publisher:NEWNAN

Chapter1: Making Economics Decisions

Section: Chapter Questions

Problem 1QTC

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