Consider a situation where two firms with differentiated products behave as a duopoly in a market. The
Question:
Consider a situation where two firms with differentiated products behave as a duopoly in a market. The inverse demand functions for firms 1 and 2 are as follows:
p1 = 200 - q1 - 0.5q2
p2 = 200 - 0.5 q1 - q2
and both firms face constant marginal costs of c = 60.
Suppose that each firm set their output level simultaneously. Find the equilibrium quantity for each firm. (Hint: Symmetry can be invoked here.)
Suppose now that firm 1 was able to set their output level first, then firm 2 observed firm 1's output level and set their own. Find the equilibrium quantity for each firm. (Hint: Symmetry cannot be invoked here.)
(5 points) If the products were identical, we would have that q*1 = 70and q*2 = 35 if the firms competed sequentially. Compare this result to your results from part (b). Explain why the quantities in part (b) are closer to one another (or farther away).
Financial Accounting an introduction to concepts, methods and uses
ISBN: 978-0324789003
13th Edition
Authors: Clyde P. Stickney, Roman L. Weil, Katherine Schipper, Jennifer Francis