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Consider the Stackelberg Model of Duopoly in the class slides. Assume that Firm 1 and Firm 2 have different marginal costs of productions—that is Firm 1’s marginal cost of production is c1 and Firm

Consider the Stackelberg Model of Duopoly in the class slides. Assume that Firm 1 and Firm 2 have different marginal costs of productions—that is, Firm 1’s marginal cost of production is c1 and Firm 2’s is c2. Under this assumption, answer the following questions. i) Let Firm 1 choose its quantity first. Find Firm 2’s reaction function and the backwards-induction outcome of the game. Also, find the profit of each firm at the backwards-induction outcome. ii) Let Firm 2 choose its quantity first. Find Firm 1’s reaction function and the backwards-induction outcome of the game. Also, find the profit of each firm at the backwards-induction outcome.

Apr 17 2020 View more View Less

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