Question 32.(8 marks): Suppose that two firms produce mountain spring water and the market demand for mountain spring wa
Posted: Sun Jul 03, 2022 6:50 am
Question 32.(8 marks):Suppose that two firms produce mountain spring water and themarketdemand for mountain spring water is given as follows:P = 254 - q1 - q2Firm 1 and Firm 2 have a MC = 50a) Find the Cournot-Nash equilibrium price and quantity of eachfirm. (3marks)
b) Assume now that firm 1 becomes the Stackelberg leader. What willbethe market price, output by each firm? Compared to part a, whogains? (3marks)
c) If Firm 1 chooses a quantity, then Firm 2 chooses a quantity(havingobserved Firm 1's quantity), then Firm 1 has an opportunity torevise itsquantity (having observed Firm 2's quantity), then payoffs aredetermined,does either firm stand to gain relative to the case ofsimultaneousquantity choice? Why or why not? (hint: there is no need to doanycalculation here). (2 marks)
b) Assume now that firm 1 becomes the Stackelberg leader. What willbethe market price, output by each firm? Compared to part a, whogains? (3marks)
c) If Firm 1 chooses a quantity, then Firm 2 chooses a quantity(havingobserved Firm 1's quantity), then Firm 1 has an opportunity torevise itsquantity (having observed Firm 2's quantity), then payoffs aredetermined,does either firm stand to gain relative to the case ofsimultaneousquantity choice? Why or why not? (hint: there is no need to doanycalculation here). (2 marks)