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(Stackelberg) Let market demand in the cement industry be given byQ(P) = 200P. There are only two firms in the industry that compete on choosing

(Stackelberg) Let market demand in the cement industry be given byQ(P) = 200P. There are only two firms in the industry that compete on choosing their quantities. Firm 1, the leader, decides its quantityq1first. After firm 1's decision, firm 2 observesq1and decides its own quantityq2. The total cost function for each firm isC(qi) = 20qi+ 400, wherei= 1,2.

1. Find the best-response function for firm 2.

2. Find each firm optimal strategy and equilibrium outputs.

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