Q1: Consider a Stackelberg game of quantity competition between two firms. Firm 1 is the

leader and Firm 2 is the follower. Market demand is described by the inverse demand function

P = 1000 ? 4Q. Each firm has a constant marginal cost c = 20.

Part a. (1 mark)

Express the profit of firm 2 in terms of q1, q2. (1 mark)

Part b. (1 mark)

Find the best response function of Firm 2. (1 mark)

Part c. (1 mark)

Given the best response function of Firm 2, find the profit of Firm 1 as a function of q1 only.

Part d. (2 marks)

Find the best response function of Firm 1.

Part e. (2 marks)

Unlike Part a-d, now suppose that the marginal cost of Firm 2 lower than that of Firm 1 so

that 0

*Please see the attached for q1 and q2. Q2 is in the attachment and q1 is identical to q1 in the attachment

Question 1 (7 marks) Consider a Stackelberg game of quantity competition between two firms. Firm 1 is the leader and Firm 2 is the follower. Market demand is described by the inverse demand function P = 1000 - 4Q. Each firm has a constant marginal cost c = 20. Part a. (1 mark) Express the profit of firm 2 in terms of q1, 92. (1 mark) Part b. (1 mark) Find the best response function of Firm 2. (1 mark) Part c. (1 mark) Given the best response function of Firm 2, find the profit of Firm 1 as a function of q, only. Part d. (2 marks) Find the best response function of Firm 1. Part e. (2 marks) Unlike Part a-d, now suppose that the marginal cost of Firm 2 lower than that of Firm 1 so that 0