Suppose that inverse demand is given - Find the Stackelberg equilibrium

Question # 00579992 Posted By: dr.tony Updated on: 08/29/2017 05:32 AM Due on: 08/29/2017
Subject Economics Topic Microeconomics Tutorials:
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Stackelberg Equilibrium & SPNE

5. Suppose that inverse demand is given by

D(Q) = 56 ? 2Q, Q = q1 + q2

and the cost function is

TC(qi ) = 20qi + f

Find the Stackelberg equilibrium and compare it to the Cournot equilibrium.

6. Demand and costs are as given in the preceding question.

(a) Find the limit output for fixed costs ( f ) equal to 50, 32, 18, and 2.

(b) What is the SPNE for the entry game with the following timing: in the first-stage firm 1 can commit to its output; in the second stage firm 2 can enter and choose its output for fixed costs equal to 50, 32, 18, and 2?

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