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3. Consider the leader-follower quantity setting model. There are two firms 1 and 2 selling a perfectly divisible homogeneous product. The aggregate demand for the
3. Consider the leader-follower quantity setting model. There are two firms 1 and 2 selling a perfectly divisible homogeneous product. The aggregate demand for the product is, p(Q) = max{a (q1 q2)}, where Q = q1 q2. The two firms have identical technology with constant marginal cost c. Firm 1 sets the quantity first, and firm 2 observes firm 1's move and then sets the quantity. Find a SPE using Backward Induction
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