Question
There are only two firms in the market. Firm 1 produces Q1units of the good and Firm 2 produces Q2Total quantity supplied is Q =
There are only two firms in the market. Firm 1 produces Q1units of the good and Firm 2 produces Q2Total quantity supplied is Q = Q1+ Q2. The market demand is given by P = 50 - Q = 50 - Q1- Q2.
Suppose Firm 1 enters the market first, and Firm 2 enters the market later. The cost functions for the two firms are the same: the average cost and the marginal cost are AC = MC = $10 and the fixed cost is FC = $0.
(A) [10 points] What is the reaction curve of Firm 2 (RC2)? Write down your RC2in the format ofQ2=f(Q1), whereQ2=f(Q1) means Q2is a functionfof Q1that you need to find out.
(B) [12 points] If Firm 1 moves first, what are the Stackelberg equilibrium quantities for the two firms (Q1andQ2)?
(C) [3 points] What is the equilibrium market price (P) of the Stackelberg model?
if possible type the answer and some term need to follow the specific format, for example RC2 format is Q2 = f(Q1)
Step by Step Solution
There are 3 Steps involved in it
Step: 1
Get Instant Access to Expert-Tailored Solutions
See step-by-step solutions with expert insights and AI powered tools for academic success
Step: 2
Step: 3
Ace Your Homework with AI
Get the answers you need in no time with our AI-driven, step-by-step assistance
Get Started