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Consider two Cournot duopolists who face the market demand Q = 250 - P
Consider two Cournot duopolists who face the market demand Q = 250 - P. Both have constant marginal and average cost MC = AC = 10. Suppose firm l's best response function is q1 and firm 2's is q2 = 240-91 a. Find the Cournot-Nash equilibrium quantities, price and profits of each firm. b. Is this outcome efficient? Why? c. Explain the principal difference between the Cournot model of duopoly and the Stackelberg model. 2
Expert Solution
Ans b
Yes, the outcome of both the firms is in Nash equilibrium. Both the firms does not want to deviate from the outcomes. It is the best output level for the firms that maximise their profits.
Ans c
in cournot model both the firms decide the output level simultaneously given the output of other firms.
But in the stackleberg model, one firm is leader and other is follower. leader take the first mover advantage. Amd follower decide his outcome afrer leader decides.
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