Business, 03.11.2020 17:10 kirstennnash

1. Market demand for gizmos is P = 750 − 0.5Q. Suppose there are two firms in the gizmo industry, selling identical products. Firm 1’s cost function is , and firm 2’s cost function is C2(Q2) = 10Q2. (a) Suppose that the gizmo firms compete on quantity and move simultaneously (i. e., they are in a Cournot duopoly). i. Derive each firm’s best response function. ii. Find the Cournot equilibrium levels of output for each firm. iii. Find the market price and profits for each firm. (b) Suppose instead that firm 1 is able to start production before firm 2. i. Find the Stackelberg equilibrium levels of output for each firm. ii. Find the market price and profits for each firm. (c) Comparing the two duopoly situations, does the Cournot or Stackelberg duopoly result in greater industry profits? Which situation does firm 1 prefer? Which situation does firm 2 prefer?

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1. Market demand for gizmos is P = 750 − 0.5Q. Suppose there are two firms in the gizmo industry, se...

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