Answered: The inverse demand for a…

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

The inverse demand for a homogeneous-product Stackelberg duopoly is P = 12,000 −5Q. The cost structures for the leader and the follower, respectively, are C_L(Q_L) = 4,000Q_L and C_F (Q_F) = 5,000Q_F.

a. What is the follower’s reaction function?

Q_F = − Q_L

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

Leader output:

Follower output:

c. Determine the equilibrium market price.

$

d. Determine the profits of the leader and the follower.

Leader profits: $

Follower profits: $

Definition Video Definition Point where the demand and supply curves intersect. At the equilibrium price the quantity supplied of a good is equal to the quantity demanded. When the market is not in equilibrium, market surplus or market shortage occurs. The region that is above the price equilibrium indicates market surplus and the region below the price equilibrium indicates market shortage. Video

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