Problem
1· [Static Competition! Allison (firm 1) and Matt (firm 2) are still trying to capture the market for European carry-alls. The demand for this market is captured by P(Q) = 120-Q, where Q-ql + q2 Total costs for Allison are Ci() 20q and for Matt C240.
(a) Find the equilibrium strategies in a one-period Bertrand competition setting. You need only intuitively explain the result as in class.
(b) Find the equilibrium strategies in a one-period Cournot competition setting.
2. [Stackelberg Competition] Take the same setting as in the previous problem. Suppose now Matt or Allison could pay off an official to start selling to the market before the other in a quantity-setting game. That is, either can pay to convert the game from Cournot to Stackelberg and be the first mover
(a) Suppose Matt is the first mover. Write down a complete game tree if both Matt and Allison could only set quantities of 20 or 40.
(b) Ignore the previous quantity restriction. Up to how much would Matt be willing to pay to be the first mover in the Stackelberg game instead of playing the Cournot game?
(c) How much would Allison pay?
d) How much would each pay to avoid the other player being the first mover?
The response should include a reference list. Double-space, using Times New Roman 12 pnt font, one-inch margins, and APA style of writing and citations.