Consider a Stackelberg game of quantity competition between two firms. Firm 1 is
the leader and firm 2 is the follower. Market demand function is described as:
P = 200 - 2Q
and firm 1 and firm 2 have the same total cost function: C=10Q.
a). Find the Nash equilibrium for this market in terms of output, price and profits.
b). Suppose firm 1 and firm 2 are in Bertrand competition instead of Stackelberg competition, the market demand function and the two firms’ total cost function remain the same. Firm 1 and firm 2 produce identical products. Find the Nash equilibrium in terms of output, price and profits.
