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Two fi?rms compete in a duopoly market.




2. Two fi?rms compete in a duopoly market. Each fi?rm chooses a quantity and the price;in the market is determined from the following inverse demand function;P = 240 -0.5Q;where Q = q1 + q2. Each?firm has constant marginal costs with c1 = c2 = $60.;(a) If fi?rms choose output simultaneously,?find the Best Response Function for fi?rm 2.;(6 marks);(b) If the fi?rms choose output sequentially, with Firm 1 setting output before Firm 2 (Firm 2 is able to observe the choice of Firm 1 before making its own choice);describe a strategy for Firm 1 and describe a strategy for Firm 2. (3 marks);(c) Find the Subgame Perfect Nash Equilibrium (the Stackelberg Equilibrium) to the sequential game. (6 marks)


Paper#27931 | Written in 18-Jul-2015

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