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Let the inverse demand curve be p(q) = a - bq. Suppose there are two firms, with constant marginal cost equal to c.

A) What happens to the profit of the first firm and the second firm?

B) What is the essential intuition for this result?

C) Is Stackelberg more efficient than Cournot?

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Kritika Krishnakumar
Kritika KrishnakumarLv10
28 Sep 2019
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Related questions

Suppose that inverse demand is given by p(Q) = a-bQ, where Q is total quantity supplied in the market. There are two firms in the market, each with a cost function of c(q) = cq, now assume that the first firm moves before the second firm.

A) Compare the price level and level of output under Stackelberg to Cournot

B) What is the fundamental reason that the first firm in the stackelberg model is able to earn higher profits than in the Cournot model

Two identical firms compete in competition (Cournot competition) in the same market where the inverse demand is P(Q) = 100 รขยˆย’ Q. The constant marginal cost of both firms is 10.

(a) Find the best response function for each firm.

(b) What is the Cournot (simultaneous) equilibrium?

(c) What is the Stackelberg (sequential) equilibrium if firm 1 chooses quantity first?

Three firms produce the same product with different cost functions. Firm 1's marginal cost is 10, firm 2's marginal cost is 8, and firm 2's marginal cost is 4.

First consider a Stackelberg game with these 3 firms. Firm 1 chooses the quantity of its production first, then firms 2 and 3 chooses their quantities simultaneously after observing firm 1's quantities. Let S denote firm 1's profit in the subgame perfect equilibrium of this Stackelberg game.

Also consider a Cournot game in which the same three firms choose their quantities simultaneously. Let C denote firm 1's profit in the Nash equilibrium of the Cournot game.

Select the correct statement from the following:

A. C is never strictly greater than S.
B.

Whether C is strictly greater than S depends on the inverse demand curve.
C.

C is always strictly greater than S.

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