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Consider a Stackelberg game of quantity competition between two firms. Firm 1 is the leader and...

Consider a Stackelberg game of quantity competition between two firms. Firm 1 is the leader and firm 2 is the follower. Market demand is described by the inverse demand function P = 1000 − 4Q. Each firm has a constant unit cost of production equal to 20.

a) Solve for Nash equilibrium outcome.

b) Suppose firm 2’s unit cost of production is c< 20. What value would c have so that in the Nash equilibrium the two firms, leader and follower, had the same market share?

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