Problem 1. [Cournot and Stackelberg] Consider the case of two space travel companies, Red Origin and SpaceZ. Suppose, the inverse demand for trips to the moon is given by P=1242Q, where Q denotes the total amount of trips to the moon per year, representing the combined production of Red Origin and SpaceZ, i.e. Q=qR+qS. The price is measured in millions of euros per trip. Both Red Origin and SpaceZ have marginal costs of 4 million euros per trip. (a) Suppose the two space travel companies choose the quantities simultaneously. (a.1) (0.5 points) Find the firms' reaction curves in this quantity competition game. Plot both reaction curves in a (qR,qS)-diagram. (a.2) (0.5 points) How much does each firm produce? What is the market price? How much profit does each firm earn? Compute consumer surplus (CS), total welfare (TW) and the deadweight-loss (DWL) in this market. (b) (1 point) Now suppose that the market is a Stackelberg oligopoly and Red Origin is the first-mover. How much will each firm produce and what is the market price? How much profit does each firm earn? Compute CS, TW and DWL in this market. Compare to the results in (a.2). Problem 1. [Cournot and Stackelberg] Consider the case of two space travel companies, Red Origin and SpaceZ. Suppose, the inverse demand for trips to the moon is given by P=1242Q, where Q denotes the total amount of trips to the moon per year, representing the combined production of Red Origin and SpaceZ, i.e. Q=qR+qS. The price is measured in millions of euros per trip. Both Red Origin and SpaceZ have marginal costs of 4 million euros per trip. (a) Suppose the two space travel companies choose the quantities simultaneously. (a.1) (0.5 points) Find the firms' reaction curves in this quantity competition game. Plot both reaction curves in a (qR,qS)-diagram. (a.2) (0.5 points) How much does each firm produce? What is the market price? How much profit does each firm earn? Compute consumer surplus (CS), total welfare (TW) and the deadweight-loss (DWL) in this market. (b) (1 point) Now suppose that the market is a Stackelberg oligopoly and Red Origin is the first-mover. How much will each firm produce and what is the market price? How much profit does each firm earn? Compute CS, TW and DWL in this market. Compare to the results in (a.2)