Let the inverse demand curve be p(q) = a − bq. Suppose there are two firms, with constant marginal cost equal to C.
1. (Cournot) If both firms move simultaneously, what are their equilibrium strategies and what is the equilibrium outcome?
2. (Stackelberg) If the first firm moves before the second firm, how does your answer change?
3. What happens to the profit of the first firm and the second firm?
4. What is the essential intuition for this result?
5. Is Stackelberg more efficient than Cournot?