Assignment:
Consider the following market demand and asymmetric cost functions for the airplane production industry.
Market Demand is: P=200- (qA + qB)
Cost Function for Boeing: C(qB) = 40 qB
Cost Function for Airbus: C(qA) = 30 qA
a.) Assume that the two act according to the Cournot model, i.e. they set quantities. Derive the optimal output for each firm and the resulting market price. Be careful with the algebra, as the firms are no longer symmetric.
b.) Suppose now Boeing is the Stackelberg leader. What are the optimal outputs for the two firms and the market price under this assumption?
c.) Suppose now Airbus is the Stackkelberg leader. What are the optimal outputs for the two firms and the market price under this assumption?
d.) Comment on the differences in your answers to (a.)(b.) and (c.). What are the implications of having the higher cost firm as the Stackelberg leader when compared to the Cournot equilibrium? What are the implications of having the lower cost firm as the leader when compared to the Cournot equilibrium?
Provide complete and step by step solution for the question and show calculations and use formulas.