Calculation of Cournot - Nash equilibrium and Stackleberg Equilibrium.
Assume two identical firms produce widgets and they are the only firms in the marketplace. Their costs are given by C1 = 5 (Q1) and C2 = 5 (Q2) respectively, where Q1 is the output of firm one and Q2 is the output of firm 2. Price is determined by the following demand curve: (MC for each firm is 5)
P = 100-Q, where Q = Q1 + Q2 .
(a) Find the Cournot-Nash equilibrium.
(b) Find the Stackleberg Equilibrium.