Explain how much output will each firm produce in the stack

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Reference no: EM1358473

Suppose there are two firms operating in a market. The firms produce identical products, and the total cost for each firm is given by C = 3qi, i = 1,2, where qi is the quantity of output produced by firm i. Therefore the marginal cost for each firm is constant at MC = 3. Also, the market demand is given by P = 51 -Q, where Q= q1 + q2 is the total industry output.

The following formulas will be useful:

If market demand is given by P = a -bQ, then

MR1 = a - 2bq1 - bq2
MR2 = a - bq1 - 2bq2

Suppose Firm 1 chooses its quantity first, and then firm 2 chooses its quantity.

A) How much output will each firm produce in the Stackelberg Equilibrium?

B) What will be the market price?

C) How much profit does each firm make?

D) What is the deadweight loss that results from this market?

Reference no: EM1358473

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