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6: When we have a homogeneous product duopoly, each firm has constant marginal cost of 10....

6: When we have a homogeneous product duopoly, each firm has constant marginal cost of 10. The market inverse demand curve is p = 250 – 2Q where Q = q1 + q2 is the sum of the outputs of firms 1 and 2, and p is the price of the good. Marginal and average cost for each firm is 10. (a) In this market, what are the Cournot and Bertrand equilibrium quantities and prices? Will the firms collude in a two period version of the model in which each firm can observe the other’s behaviour in the first period? (b) Assuming firm 1 is the “leader” (i.e., first mover) and firm 2 is the “follower” (i.e., moves following the first), find the outcome for the Stackelberg model.

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