Suppose two firms are deciding how much of a good to produce. The inverse demand function is p(y1 + y2) = 100 − 2(y1 + y
Posted: Sun Jul 03, 2022 1:05 pm
Suppose two firms are deciding how much of a good to produce.The inverse demand function is p(y1 + y2) = 100 − 2(y1 + y2).Suppose further that the two firms have production costs of c1(y1)= 2y1 and c2(y2) = 4y2, respectively.
1. Suppose that Firm 1 gets to choose output y1 first, and thenFirm 2 gets to decide y2 after observing y1 (the Stackelberg case).What are the equilibrium production choices yˆ , yˆ ? What profitdoes each firm make?
2. Suppose now that Firm 1 and Firm 2 choose outputssimultaneously. What are the equilibrium production choices yˆ , yˆ? What profit does each firm make? Which firm is better off, andwhich firm is worse off in this setup than the Stackelberg caseabove?
1. Suppose that Firm 1 gets to choose output y1 first, and thenFirm 2 gets to decide y2 after observing y1 (the Stackelberg case).What are the equilibrium production choices yˆ , yˆ ? What profitdoes each firm make?
2. Suppose now that Firm 1 and Firm 2 choose outputssimultaneously. What are the equilibrium production choices yˆ , yˆ? What profit does each firm make? Which firm is better off, andwhich firm is worse off in this setup than the Stackelberg caseabove?