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Consider a market supply by two identical firms that face a linear market demand curve and have identical costs: P = 1200 - 0.5Q, Q

Consider a market supply by two identical firms that face a linear market demand curve and have identical costs:

P = 1200 - 0.5Q,

Q = Q₁+ Q₂and

TC₁= TC₂= 20000 + Q_i

(so marginal cost is 1 for each firm)

a.Derive the relevant reaction functions for each firm.

b.Find the Stackelberg equilibrium.

(note I got Q1=0 and Q2=2398 with negative profits for both firms so wanted to check this)

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