[Q: 14-2191705] Consider a duopoly in which two identical firms compete by setting their quantities but Firm 1 has first

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Q 14 2191705 Consider A Duopoly In Which Two Identical Firms Compete By Setting Their Quantities But Firm 1 Has First 1 (45.67 KiB) Viewed 18 times

[Q: 14-2191705] Consider a duopoly in which two identical firms compete by setting their quantities but Firm 1 has first mover advantage (i.e., Firm 1 is the Stackelberg Leader). We want to consider whether Firm 1 should use its advantage to drive Firm 2 out of the market. Suppose the inverse market demand is P (91-92) = 275-9₁-92 and each firm has a marginal cost of $35 per unit. Also assume that fixed costs are negligible. Strategy #1: Firm does not drive Firm 2 out of the market If Firm 1 does not drive Firm 2 out of the market, the resulting equilibrium will be the Nash-Stackelberg equilibrium. Calculate the equilibrium when Firm 1 moves first and determine Firm 1's profits in this equilibrium. (Enter your responses rounded to two decimal places.) and q₂ = Equilibrium quantities: q₁ = Equilibrium price: P = $ Firm 1's profits: ₁ = $ Strategy #2: Firm 1 drives Firm 2 out of the market Consider an alternative strategy where Firm 1 produces a quantity that results in Firm 2 producing nothing. Calculate the minimum quantity that Firm 1 would have to produce to drive Firm 2 out of the market, the resulting market price, and Firm 1's profits. Firm 1's quantity: 9₁ = units. (Enter your response rounded to two decimal places.) Equilibrium price: P = (Enter your response rounded to two decimal places.) Firm 1's profits: ₁ = $₁ Firm 1 would need to continue producing at the higher level you found under Strategy #2 to keep Firm 2 out of the market. Comparing Firm 1's profits under the strategies, what is the optimal strategy for Firm 1, the Stackelberg leader, to use? O A. Strategy 1 O B. Strategy 2