Firm 1 is a low-cost firm whereas Firm 2 is a high-cost firm. Both the firms face an identical demand curve given by the demand function as Q = 50 – 0.5 P The cost functions of the two firms are given, respectively, as TC 2

1 = 100 + 20 Q 1 + 2 Q 1 and TC 2

2 = 48 + 36 Q 2 +2 Q 2 Find the following:

(

a) Price and output of Firm 2 prior to Firm 1 working as the price leader, and

(

b) Price and output of Firm 2 after it accepts the price leadership of Firm 1.

PRICE AND OUTPUT DETERMINATION UNDER OLIGOPOLY 411