Suppose that the market demand for fax paper is given by P = 20−2Q. The industry consists of two ﬁrms facing a constant marginal cost of $12 and zero ﬁxed costs. Assuming that the two ﬁrms play a Cournot game:

a (15). Calculate the equilibrium quantity for each ﬁrm.

b (3). Calculate the market equilibrium quantity and price.

c (2). Calculate the implied proﬁt for each ﬁrm.

. The ﬁrms now play a Stackelberg game and ﬁrm 1 is the leader.

a (15). Calculate the Stackelberg equilibrium quantity for each ﬁrm.

b (3). Calculate the market equilibrium quantity and price.

c (2). Calculate the implied proﬁt for each ﬁrm.

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