Exercise 1 Consider The Following Duopoly Model Let A 0 If Qi 0 Is Produced By Firm I 1 2 Then Q 91 92 Is 1 (183.19 KiB) Viewed 48 times
Exercise 1 Consider The Following Duopoly Model Let A 0 If Qi 0 Is Produced By Firm I 1 2 Then Q 91 92 Is 2 (39.72 KiB) Viewed 48 times
Exercise 1. Consider the following duopoly model. Let a > 0. If qi ≥ 0 is produced by firm i € {1,2}, then Q = 91 +92 is the aggregate quantity in the market and P = P(Q) = a - Q (assuming Q <a, else P = 0) is the per unit price. Hence, the total demand at price p > 0 is Q = D(p) = = a - p (in case p > a, it is 0). If the firms announce prices p; ≥ 0, then firm i sells D(p;) and the other firm has no demand if pi < P3-i. Moreover, both firms share D(p;) equally if p₁=p2. Assume that the cost of firm i for producing q; units is Ci(qi) = q, hence it is quadratic in the produced quantity.
Compute the Stackelberg equilibrium with firm 1 as leader and compare the Stackelberg with the Cournot profits.
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