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PS2_ECON160SSI10

# PS2_ECON160SSI10 - ECON 160 SUMMER 10 WANER GU UC RIVERSIDE...

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1 ECON 160, SUMMER 10 WANER GU UC RIVERSIDE PROBLEM SET #2 (Total Points: 30) DUE: in class, MONDAY, JULY 12, 2010 1. (12 points) Consider the Stackelberg duopoly in which firm 1 is the leader and firm 2 is the follower. Both firms have the same constant marginal cost 4. The firms produce homogeneous products, and market inverse demand is given by P(Q) = 8-3Q, where Q denotes the sum of firm 1’s output q1 and firm 2’s output q2. 1.1). (2 points) Calculate firm 1’s Stackelberg leader output and firm 2’s Stachelberg follower output. 1.2). (2 points) Calculate the market equilibrium price. 1.3). (2 points) Calculate firm 1’s Stackelberg leader profit and firm 2’s Stachelberg follower profit. 1.4). (2 points) Show that market equilibrium price is lower in Stackelberg duopoly than in Cournot duopoly with the same marginal cost. 1.5). (2 points) Show that firm 2’s Stackelberg follower output is less than firm 1’s Cournot output with the same marginal cost. 1.6). (2 points) Show that firm 1’s Stackelberg leader profit is more than firm 1’s Cournot

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PS2_ECON160SSI10 - ECON 160 SUMMER 10 WANER GU UC RIVERSIDE...

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