Consider an oligopoly in which firms choose quantities. The inverse market demand curve is given by P = 280 - 2(X + Y ), where X is the quantity of Firm 1, and Y is the quantity of Firm 2. Each firm has a marginal cost equal to 40.
a) What is the Cournot equilibrium outputs for each firm? What is the market price at the Cournot equilibrium? What is the profit of each firm?
b) What is the Stackelberg equilibrium, when Firm 1 acts as the leader? What is the market price at the Stackelberg equilibrium? What is the profit of each firm?