Sub: Economics Question

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Topic: Micro Economics

Determination of equilibrium price and output and consumer and producer surplus in a duopolistic industry based on Cournot and Stakelberg models and a
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comparison to perfect competition.
Two identical firms face linear demand. Market demand is given by P=30-Q. suppose both firms face zero marginal costs. 1. Solve for Cournot equilibrium prices and outputs. 2. Solve for Stakelberg equilibrium prices and outputs. 3. Compare graphically consumer and producer surplus in Cournot and Stakelberg equilibrium to perfect competition.

Solution:
1. P= 30-Q = 30-(Q1+Q2) Where Q= Q1+Q2=industry output Q1=firm 1’s output Q2=firm 2’s output MC=0 TR1= PQ1= 30*Q1- Q1^2 –Q2*Q1 MR1=30 - 2Q1 - Q2 TR2=PQ2=30*Q2 - Q1*Q2 – Q2^2 MR2=30 – Q1 – 2Q2 If you like to download the complete solution, visit our solution library by copying to your browser the following link
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