Duopolists share a market in which the market demand is P = 20 – Q, where Q = q1 + q2.
The firms’ cost functions are C1 = 4 + 6q1 and C2 = 3 + 4q2.
a) Derive and graph each firm’s reaction function.
b) In the Cournot equilibrium, what quantity will each firm produce? What price will each
c) In the Stackelberg equilibrium, what quantity will each firm produce? What price will
each firm charge? (You may assume that firm 1 makes its output decision first.)
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