Consider a Cournot duopoly with the inverse demand P= 260-2Q. Firms 1 and 2 compete by simultaneously choosing their quantities. Both firms have constant marginal and average cost MC=AC = 20 .
a. Find each firm’s best response function.
b. Find the Cournot-Nash equilibrium quantities, profits and market price.
c. Plot the best response curves and illustrate the equilibrium point.
d. Suppose, instead, that firm 1 chooses first and 2 follows. Find the Stackelberg equilibrium quantities, profits and market price.