Correct answers in the picture. Can someone please provide a solution. Consider a duopoly in which two identical firms compete by setting their quantities but Firm 1 has first mover advantage (i.e.,Firm 1 is the Stackelberg Leader). We want to consider whether Firm 1 should use its advantage to drive Firm 2 out of the market.Suppose the inverse market demand is P (9₁,92) = 275-9₁-92 and each firm has a marginal cost of $35 per unit. Also assume that fixedcosts are negligible.Strategy #1: Firm 1 does not drive Firm 2 out of the marketIf Firm 1 does not drive Firm 2 out of the market, the resulting equilibrium will be the Nash-Stackelberg equilibrium. Calculate the equilibriumwhen Firm 1 moves first and determine Firm 1's profits in this equilibrium. (Enter your responses rounded to two decimal places.)Equilibrium quantities: q₁ = 120.00 and q₂ = 60.00.Equilibrium price: P = $95.00.Firm 1's profits: ₁ = $7200.00. Strategy #2: Firm 1 drives Firm 2 out of the marketConsider an alternative strategy where Firm 1 produces a quantity that results in Firm 2 producing nothing. Calculate the minimum quantitythat Firm 1 would have to produce to drive Firm 2 out of the market, the resulting market price, and Firm 1's profits.Firm 1's quantity: 9₁= 240.00 units. (Enter your response rounded to two decimal places.)Equilibrium price: P = 35.00. (Enter your response rounded to two decimal places.)Firm 1's profits: ₁ = $0.00.Firm 1 would need to continue producing at the higher level you found under Strategy #2 to keep Firm 2 out of the market. Comparing Firm 1'sprofits under the strategies, what is the optimal strategy for Firm 1, the Stackelberg leader, to use?A. Strategy 1B. Strategy 2

We have to find best response of firm 2 to find the optimal production for both firms

Strategy #2: Firm 1 drives Firm 2 out of the market Consider an alternative strategy where Firm 1 produces a quantity that results in Firm 2 producing nothing. Calculate the minimum quantity that Firm 1 would have to produce to drive Firm 2 out of the market, the resulting market price, and Firm 1's profits. Firm 1's quantity: q₁ = 240.00 units. (Enter your response rounded to two decimal places.) Equilibrium price: P = 35.00. (Enter your response rounded to two decimal places.) Firm 1's profits: ₁ = $0.00. Firm 1 would need to continue producing at the higher level you found under Strategy #2 to keep Firm 2 out of the market. Comparing Firm 1's profits under the strategies, what is the optimal strategy for Firm 1, the Stackelberg leader, to use? A. Strategy 1 OB. Strategy 2

Strategy #2: Firm 1 drives Firm 2 out of the market Consider an alternative strategy where Firm 1 produces a quantity that results in Firm 2 producing nothing. Calculate the minimum quantity that Firm 1 would have to produce to drive Firm 2 out of the market, the resulting market price, and Firm 1's profits. Firm 1's quantity: q₁ = 240.00 units. (Enter your response rounded to two decimal places.) Equilibrium price: P = 35.00. (Enter your response rounded to two decimal places.) Firm 1's profits: ₁ = $0.00. Firm 1 would need to continue producing at the higher level you found under Strategy #2 to keep Firm 2 out of the market. Comparing Firm 1's profits under the strategies, what is the optimal strategy for Firm 1, the Stackelberg leader, to use? A. Strategy 1 OB. Strategy 2

ENGR.ECONOMIC ANALYSIS

14th Edition

ISBN:9780190931919

Author:NEWNAN

Publisher:NEWNAN

Chapter1: Making Economics Decisions

Section: Chapter Questions

Problem 1QTC

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Question

Correct answers in the picture. Can someone please provide a solution.

Consider a duopoly in which two identical firms compete by setting their quantities but Firm 1 has first mover advantage (i.e.,
Firm 1 is the Stackelberg Leader). We want to consider whether Firm 1 should use its advantage to drive Firm 2 out of the market.
Suppose the inverse market demand is P (9₁,92) = 275-9₁-92 and each firm has a marginal cost of $35 per unit. Also assume that fixed
costs are negligible.
Strategy #1: Firm 1 does not drive Firm 2 out of the market
If Firm 1 does not drive Firm 2 out of the market, the resulting equilibrium will be the Nash-Stackelberg equilibrium. Calculate the equilibrium
when Firm 1 moves first and determine Firm 1's profits in this equilibrium. (Enter your responses rounded to two decimal places.)
Equilibrium quantities: q₁ = 120.00 and q₂ = 60.00.
Equilibrium price: P = $95.00.
Firm 1's profits: ₁ = $7200.00.

Strategy #2: Firm 1 drives Firm 2 out of the market
Consider an alternative strategy where Firm 1 produces a quantity that results in Firm 2 producing nothing. Calculate the minimum quantity
that Firm 1 would have to produce to drive Firm 2 out of the market, the resulting market price, and Firm 1's profits.
Firm 1's quantity: 9₁
= 240.00 units. (Enter your response rounded to two decimal places.)
Equilibrium price: P = 35.00. (Enter your response rounded to two decimal places.)
Firm 1's profits: ₁ = $0.00.
Firm 1 would need to continue producing at the higher level you found under Strategy #2 to keep Firm 2 out of the market. Comparing Firm 1's
profits under the strategies, what is the optimal strategy for Firm 1, the Stackelberg leader, to use?
A. Strategy 1
B. Strategy 2

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