Q.2 Two firms produce homogeneous products. The inverse demand function is: p(x₁, x₂) = a x₁- x2, where x₁ is the quantity chosen by firm 1, x₂ the quantity chosen by firm 2, and a > 0. The cost functions are C₁ (x₁) = x² and C₂(x₂) = x2. Firm 1 is a Stackelberg leader and firm 2 a Stackelberg follower. Q.2.a Find the subgame-perfect quantities. Q.2.b Calculate each firm's equilibrium profit.

Q.2 Two firms produce homogeneous products. The inverse demand function is: p(x₁, x₂) = a x₁- x2, where x₁ is the quantity chosen by firm 1, x₂ the quantity chosen by firm 2, and a > 0. The cost functions are C₁ (x₁) = x² and C₂(x₂) = x2. Firm 1 is a Stackelberg leader and firm 2 a Stackelberg follower. Q.2.a Find the subgame-perfect quantities. Q.2.b Calculate each firm's equilibrium profit.

ENGR.ECONOMIC ANALYSIS

14th Edition

ISBN:9780190931919

Author:NEWNAN

Publisher:NEWNAN

Chapter1: Making Economics Decisions

Section: Chapter Questions

Problem 1QTC

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