Suppose the inverse market demand function for a homogenous-product Stackelberg duopoly is given by P=80-2(q₁+q₂) and Q=q₁+q₂ is the total output produced in the market, P is the market price, q₁ is the quantity of output produced by the leader, q₂ is the quantity of output produced by the follower.

The total cost structures for the leader and follower are TC₁=2q₁ and TC₂=4q₂ respectively.

2. Write down the Formula: Equilibrium Outputs in Stackelberg Oligopoly including all the wording. (From your textbook)

For the linear (inverse) demand function

P = a b (Q₁ + Q₂)

And cost functions

C₁ (Q₁) = c₁Q₁

C₂ (Q₂) = c₂Q₂

The follower sets output according to the Cournot reaction function

Q₂ = r₂ (Q₁) = a-c₂/2b - 1/2Q₁

3. Using the formulas from question 2, determine the values of the leaders output q₁ and the followers output q2.

4. Determine the equilibrium market price.

5. Determine the profits of the leader and the follower.