Suppose that the market demand for fax paper is given by P = 20-2Q. The industry consists of two ?rms facing a constant marginal cost of $12 and zero ?xed costs. Assuming that the two ?rms play a Cournot game:
a. Calculate the equilibrium quantity for each ?rm.
b. Calculate the market equilibrium quantity and price.
c. Calculate the implied pro?t for each ?rm.
The ?rms now play a Stackelberg game and ?rm 1 is the leader.
a. Calculate the Stackelberg equilibrium quantity for each ?rm.
b. Calculate the market equilibrium quantity and price.
c. Calculate the implied pro?t for each ?rm.