Question
Two firms, 1 and 2, compete in a market for a homogeneous good by choosing the quantity they produce. Market demand is given by =
Two firms, 1 and 2, compete in a market for a homogeneous good by choosing the quantity they produce. Market demand is given by = 10 1. The cost of firms is represented by the function () = 1 + . Where is the entry cost of the firm . Let's initially assume that both firms have already entered and established themselves in the market a long time ago, such that the cost of entry () is irrelevant. (a) Calculate the equilibrium of the Stackelberg game, where firm 1 is the leader and firm 2 is the follower (price, quantity of each firm and their profit).
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