In Farmland, only Clancy and Amy can raise free-range chickens on the.docx - In Farmland only Clancy and Amy can raise free-range chickens on their

# In Farmland, only Clancy and Amy can raise free-range chickens on the.docx

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In Farmland, only Clancy and Amy can raise free-range chickens on their farms. Assume that Clancy and Amy can collect and sell a large quantity of eggs at no cost and that free-range eggs produced outside Farmland cannot be transported into the town for sale. The following questions will walk you through the process of computing the equilibrium result using the Stackelberg model. Suppose that, in this market, Clancy decides how many eggs per day he is going to produce, and then Amy makes her decision after observing Clancy's quantity choice. The market demand for eggs is given by Q = 16 P. Use the purple line (diamond symbol) on the following graph to illustrate Amy's best- response function as determined by the quantity of eggs Clancy decides to produce. Amy's BR AMY'S QUANTITY (Gross of eggs per day) 0 20 2 4 6 8 10 12 14 16 18 CLANCY'S QUANTITY (Gross of eggs per day) Since Clancy knows how Amy will react depending on the quantity of eggs he sells, he can internalize this effect by deriving the net demand for his eggs.

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• Fall '16

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