Suppose Airbus (firm A) and Boeing (firm B) are the only two companies in the aircraft industry and they choose quantities of outputs to compete. The industry demand and cost conditions are (note that costs are different for the two companies):
P = 60 – 2 (qB + qA)
MCA = ATCA = 20, and MCB = ATCB = 10
a) Assume that the two firms choose quantities simultaneously and solve the Cournot-Nash equilibrium. Be sure to characterize the quantity choices, the market price, and the resulting profits.
b) Suppose that Boeing is the Stackelberg leader and chooses its quantity first, then Airbus makes a move observing what Boeing has done. Solve the equilibrium in this sequential game. Be sure to characterize the quantity choices, the market price, and the resulting profits.
c) Compare the above two outcomes and explain the differences.
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