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6. In a Stackelberg duopoly, one firm is a leader and the other is a follower. Both firms know each other's costs as well as

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6. In a Stackelberg duopoly, one firm is a "leader" and the other is a "follower." Both firms know each other's costs as well as market demand. The follower acts like a Cournot competitor; the leader takes the follower's best-response function as given and picks its own output accordingly. Suppose that firms 1 and 2 face market (inverse) demand p = 100 - (91 + 92) and have costs C1 = 10q1 and C2 = 97 , respectively. 7 (a) Determine each firm's best response as a function of the other firm's assumed level of output. (b) Assuming that firm 1 is the leader and firm 2 the follower, determine the Stackelberg equilibrium outputs, market price, and profits.(c) Assuming instead that firm 2 is the leader and firm 1 the follower, determine the Stackelberg equilibrium outputs, market price, and profits. (d) Given the foregoing, would firm 1 prefer to be the leader or the follower? What about firm 2? 8 For extra credit: (e) If each firm were to assume what it wants to be the case according to part (d), what would be the resulting equilibrium outputs, market price, and profits? How does this outcome compare with the Nash-Cournot equilibrium in market in

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