Consider a setting of two competing firms F1 and F2. Both firms maximize their profits and provide a homogeneous ouput qi with (i = 1, 2) at market price p. Assume market clearing prices and non-negative outputs. Assume further, that the firms engage in quantity competition. The inverse market demand function is: p(q) = 41 - q, where q = q₁ + q2. The cost functions are: C1 = 2q1, C2 = q22. Assume F2 is the dominant firm. a) Should F2 prefer to play Cournot duopoly or Stackelberg competition in a one shot game?
Consider a setting of two competing firms F1 and F2. Both firms maximize their profits and provide a homogeneous ouput qi with (i = 1, 2) at market price p. Assume market clearing prices and non-negative outputs. Assume further, that the firms engage in quantity competition. The inverse market demand function is: p(q) = 41 - q, where q = q₁ + q2. The cost functions are: C1 = 2q1, C2 = q22. Assume F2 is the dominant firm. a) Should F2 prefer to play Cournot duopoly or Stackelberg competition in a one shot game?
Chapter1: Making Economics Decisions
Section: Chapter Questions
Problem 1QTC
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Consider a setting of two competing firms F1 and F2. Both firms maximize their profits and provide a homogeneous ouput qi with (i = 1, 2) at market price p. Assume market clearing prices and non-negative outputs. Assume further, that the firms engage in quantity competition.
The inverse
a) Should F2 prefer to play Cournot duopoly or Stackelberg competition in a one shot game?
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