Question
For questions 4-10, please refer to the information given below. Suppose a market is served by two firms (a duopoly). The market demand function given
For questions 4-10, please refer to the information given below.
Suppose a market is served by two firms (a duopoly). The market demand function given by P = 1200 - Q1 - Q2 where Q1 is the output produced by firm 1 and Q2 is the output produced by firm 2.
Firm 1's cost of production is given by the function C(Q1) = 120Q1 and firm 2's cost of production is given by the function C(Q2) = 120Q2.
The average cost of firm 1 is given by AC1 = 120 and the average cost of firm 2 is given by AC2 = 120.
Marginal profit function for firm 1:
Marginal profit function for firm 2:
4. What are the equilibrium output levels of firm 1 and firm 2 in the Cournot model equilibrium?
(A) Firm 1 = 320 units, firm 2 = 320 units
(B) Firm 1 = 340 units, firm 2 = 340 units
(C) Firm 1 = 360 units, firm 2 = 360 units
(D) Firm 1 = 380 units, firm 2 = 380 units
5. What will be the equilibrium market price in the Cournot model?
(A) 420
(B) 480
(C) 460
(D) 500
6. What will be the profit earned by each of the symmetric firms in the Cournot market equilibrium?
(A) $129,600, $129,600[First number belongs to firm 1 and second number belongs to firm 2.]
(B) $126,900, $126,900
(C) $128,600, $126,800
(D) $129,900, $129,900
7. What will be the equilibrium output level produced by the Stackelberg leader (first-mover) firm?
Note - Assume firm 1 is the Stackelberg leader and firm 2 is the Stackelberg follower.
Stackelberg leader's marginal profit function:,
(A) 450
(B) 540
(C) 504
(D) 405
8. What will be the equilibrium output level produced by the Stackelberg follower (second-mover) firm?
(A) 270
(B) 360
(C) 420
(D) 450
9. What will be the equilibrium profit levels earned by the Stackelberg leader firm and the Stackelberg follower firm?
(A) $145,400, $72,900
(B) $145,800, $72,900
(C) $142,400, $80,500
(D) $72,900, $72,900
10. For two symmetric firms, when we compare the equilibrium outcomes (output, price and profit levels) of the Cournot model with the Stackelberg model, we learn
(A) Stackelberg leader produces more and earns less than the Cournot firm while the Stackelberg follower produces less and earns more than the Cournot firm.
(B) Stackelberg leader produces more and earns more than the Cournot firm while the Stackelberg follower produces and earns the same as the Cournot firm.
(C) Stackelberg leader produces more and earns more than the Cournot firm while the Stackelberg follower produces less and earns less than the Cournot firm.
(D) The two economic models are not comparable.
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