Consider a market competing under Cournot Quantity Competition. There are two firms in this market: Firm X and Y . The market inverse demand function is, P = 20 Q where Q = qX + qY qX is quantity demanded from Firm X, qY is quantity demanded from Firm Y , Q is the market demand, and P is the market price. Firm X has a production advantage over Firm Y because it has better production technology. Firm X can produce 1 unit of quantity at a constant marginal cost of 2 (MCX = 2) and Firm Y produces 1 unit of quantity at a constant marginal cost of 4 (MCY = 4). (Partial output is possible. i.e., 2.25 or 3.67 units of output is possible.)

b) What are the best response functions (BRFs) of the two firms?

c) What is equilibrium output from the two firms in this market?

d) What is the equilibrium price in this market?

e) What are the profits of the two firms?

f) Now suppose that Firm X is the leader and Firm Y is the follower (Stackelberg). What is the equilibrium levels of output for Firm X and Y