5. Consider a market for an identical product that has (inverse) demand given by P = 70 - 0.25Q where Q is the total out

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5 Consider A Market For An Identical Product That Has Inverse Demand Given By P 70 0 25q Where Q Is The Total Out 1 (37.93 KiB) Viewed 39 times

5. Consider a market for an identical product that has (inverse) demand given by P = 70 - 0.25Q where Q is the total output in the market. In this market, firm 1 chooses its output 91 first and then firm 2, after observing 91, chooses its output level 92. Firm 1 has a constant marginal cost c = 10 per unit and firm 2 has a constant marginal cost c2 = 15 per unit. a. What is the subgame perfect equilibrium of this game? How much output is each firm producing in equilibrium? How much profits are each firm making in equilibrium? (5 pts) b. Now suppose that we reverse the order of the game such that firm 2 now moves first and firm 1 moves second after observing firm 2's output. What is the subgame perfect equilibrium of this game? How much output is each firm producing in equilibrium? How much profits are each firm making in oquilibrium? (5 pts) c. Now suppose that firm 2's marginal cost was reduced to cz = 10 per unit but firm 2 is back to being the second mover again (firm 1 moves first and firm 2 moves second after observing firm l's output). What is the subgame perfect equilibrium of this game? How much output is each firm producing in equilibrium? How much profits are each firm making in equilibrium? (5 pts)