Question 2 (8 marks): Suppose that two firms produce mountain spring water and the market demand for mountain spring wat
Posted: Wed Jul 06, 2022 5:59 am
Question 2 (8 marks):
Suppose that two firms produce mountain spring water and the market
demand for mountain spring water is given as follows:
P= 126 - Q1 - Q2
Firm 1 and Firm 2 have a MC = 30
a) Find the Cournot-Nash equilibrium price and quantity of each firm. (3
marks)
b) Assume now that firm 1 becomes the Stackelberg leader. What will be
the market price, output by each firm? Compared to part a, who gains? (3
marks)
c) If Firm 1 chooses a quantity, then Firm 2 chooses a quantity (having
observed Firm 1's quantity), then Firm 1 has an opportunity to revise its
quantity (having observed Firm 2's quantity), then payoffs are determined,
does either firm stand to gain relative to the case of simultaneous
quantity choice? Why or why not? (hint: there is no need to do any
calculation here). (2 marks)
Suppose that two firms produce mountain spring water and the market
demand for mountain spring water is given as follows:
P= 126 - Q1 - Q2
Firm 1 and Firm 2 have a MC = 30
a) Find the Cournot-Nash equilibrium price and quantity of each firm. (3
marks)
b) Assume now that firm 1 becomes the Stackelberg leader. What will be
the market price, output by each firm? Compared to part a, who gains? (3
marks)
c) If Firm 1 chooses a quantity, then Firm 2 chooses a quantity (having
observed Firm 1's quantity), then Firm 1 has an opportunity to revise its
quantity (having observed Firm 2's quantity), then payoffs are determined,
does either firm stand to gain relative to the case of simultaneous
quantity choice? Why or why not? (hint: there is no need to do any
calculation here). (2 marks)