Question

Suppose the demand for pizza in a small isolated town is p = 20 - Q....

Suppose the demand for pizza in a small isolated town is p = 20 - Q. There are only two firms, A and B. Each has a cost function TC = 5 + Q.
a. (12 points) Determine the equilibrium quantities of each firm if firm A is the Stackelberg leader.

b. (2 point) Which firm has larger quantity? Why?

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Answer #1

Part A.

Part B.

Firm A produces more quantity than firm B because Firm A is a leader and leader's profit maximizing quantity is always greater than follower.

Leader always check best response of follower and subsititute that BR function in its profunction to get it's profit maximizing quantity.

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