Question

# Consider a market with two firms where the inverse demand function is given by p = 28 – 2q and where q = q1 + q2.

Each firm has the total cost function c(qi) = 4qi, where i = {1,2}. a) Compare price level, quantities and profits in this market calculating the Cournot equilibrium and the Stackelberg equilibrium. Draw a graph with best response functions and illustrate the Cournot and Stackelberg solutions in that graph. b) Compare your solutions in a) to the outcomes under perfect competition and under collusion (monopoly) and illustrate your additional findings in the same graph.

Counnot:

P= 28- 2(91 1 +962 )

X1 = 128- 2 ( 91, +9 2)) 011 – 4011

any/aor = 0 = 28-4011- 292- 4911= 0

28 – 2012 = V1

Similarly, for tion 2 ,

8

128 – 201 = 012

Best duesponse function

B

801.

91 = 92…Microeconomics