Consider an industry with 2 firms, each having marginal cost equal to zero. The inverse demand function facing this industry is P(Y) = 100 – Y where Y = y1 + y2
a) What is the competitive equilibrium level of industry output?
b) If each firm behaves as a Cournot competitor, what is firm 1’s optimal choice given firm 2’s output?
c) Calculate the Cournot equilibrium amount of output for each firm.
d) Calculate the cartel amount of output for the industry.
e) If firm 1 as follower and firm 2 behaves as leader, calculate the Stackelberg equilibrium output