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ECO 3326

FaIl2013 Klaus Becker

Sec 001

Quiz #16 Friday, November 15th

Solutions

I

Consider a market with two firms, firm 1 is the leader and firm 2 is the follower. Let the market demand be given by: P(Q)

:

200

-Q or Q(P) : 200- P,, Q :

ET=tat

Both the leader's and the follower's technology/cost is characterized by:: Ci(qi)

:40qi, MCi(qi):40: ACi(q)

forl:

I,2

Derive the Leader-Follower (von Stackelberg) quantities (q1 and qz) and market price,

Note:

fr:

tsoclat:

ZOO- 9r

- 2q240 anafr:200

? t-o ft'+ ur'2a

-2q,

_80 + q1 -40

s?

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