ECON2009 Oligopoly

Oligopoly (9 points) Suppose there are two hair salons in a small town. The salons have an identical cost function 601;) = 5 + 0.5qI-2; (i = 1,2). The market demand for hair cuts in that town is given by P(Q) = 36 Q ; (Q = q1 + qz). (2 points+2points) What will the equilibrium price and quantity in the market be if the salons are involved in a Cournot competition i.e they take opponent's quantity as given and decide simultaneously? (2 points+2 points) What is the Stackelberg equilibrium output and price for each firm if salon 2 enters second i.e if salon 1 acts as a leader and decides before salon 2? (1 point) Which type of competition generates higher profit for salon 1