4.(16 pts.) Consider an oligopoly in which firms choose quantities. The inverse market demand curve is given
Question:
4.(16 pts.) Consider an oligopoly in which firms choose quantities. The inverse market demand curve is
given by = 300 ( + ), where X is the quantity of Firm 1, and Y is the quantity of Firm2 Firm 1's marginal cost equals 40, and Firm 2's marginal cost equals 20.
a)In a simultaneous Cournot duopoly, what are the best response functions of the firms? Graph them. (3 pts.)
b)What is the Cournot equilibrium output for each firm? What is the market price at the Cournot equilibrium? What is the profit of each firm? (5 pts)
c)What is the Stackelberg equilibrium output for each firm when Firm 1 decides its output first?What is the market price and each firm's profit? (5 pts)
d)Between the above Cournot duopoly and Stackelberg duopoly from part c), which duopoly is preferred by the consumers and why? Which duopoly do firms prefer? (3 pts.)