Consider a market with two identical firms, Firm A and Firm B. The market demand is: 1 P = 100 –Q where Q = Qa + QB . The cost conditions are MC, = MCg = AC, = ACg = 24. (Hint: Round your solutions to 2 decimal places.) a) Assume this market has a Stackelberg leader, Firm A. Solve for the quantity, price and profit for each firm. Explain your calculations. b) How does this compare to the Cournot-Nash equilibrium quantity, price and profit? Explain your calculations. c) Present the Stackelberg and Cournot equilibrium output using a diagram. d) Solve for the Bertrand equilibrium output, price and profit for each firm. Explain your calculations. Does the solution justify the Bertrand paradox? e) The crude oil market can be described as a Nash-Cournot market, in which Saudi Arabia acts as Stackelberg leader. Do you agree with this statement?

Consider a market with two identical firms, Firm A and Firm B. The market demand is: 1 P = 100 –Q where Q = Qa + QB . The cost conditions are MC, = MCg = AC, = ACg = 24. (Hint: Round your solutions to 2 decimal places.) a) Assume this market has a Stackelberg leader, Firm A. Solve for the quantity, price and profit for each firm. Explain your calculations. b) How does this compare to the Cournot-Nash equilibrium quantity, price and profit? Explain your calculations. c) Present the Stackelberg and Cournot equilibrium output using a diagram. d) Solve for the Bertrand equilibrium output, price and profit for each firm. Explain your calculations. Does the solution justify the Bertrand paradox? e) The crude oil market can be described as a Nash-Cournot market, in which Saudi Arabia acts as Stackelberg leader. Do you agree with this statement?

ENGR.ECONOMIC ANALYSIS

14th Edition

ISBN:9780190931919

Author:NEWNAN

Publisher:NEWNAN

Chapter1: Making Economics Decisions

Section: Chapter Questions

Problem 1QTC

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