Question

MomCorp (M) and Planet Express, Inc. (E) are two firms that compete in a Cournot duopoly by simultaneously setting quantities (of package deliveries). Denote MomCorp's quantity by Q and Planet Express's quantity by Qe. The package deliveries they offer are identical, so the price is determined in a combined market according to the inverse demand equation, P = 120-Q, where Q = Qu + Qe. Suppose that MomCorp has constant marginal cost, MCM = 20, while Planet Express has constant marginal cost, MCE = 40. (6 points total) (a) Solve for the equilibrium quantities and the resulting price. (2 points) (b) Now suppose that MomCorp (M) can set their quantity before Planet Express (E). Explain which model of oligopoly is appropriate for this situation. Then solve for the equilibrium quantities and the price in this new model. (2 points) (c) Comparing parts (a) and (b), which model of competition does each firm prefer? Which model do consumer's prefer? Explain yo answers using intuition and/or additional calculations. (2 points)

Answer 1

Ques: classmate Date Page P = 120-2. Q=QM+ QE MCm= 20 MCE 40 This is a couenct duopely a) From M FRP. Q = 1200-22 MRM 120-20 Mem 20 MRm= MCM 120-2Q=20. too a from M TR = P. Om TR = 120 QM - QM² - QM QE MR = 120-20M-QE MCM = 20 MRm = mcm 120-20m - QE = 20 lop - QE QM firm E TR = 20Qz Qe?- QM DE MR = 120-28E-OM MCE = 40 Love MR=MG 120-DE - Qm = 40 80- QM = QE 2 2 Iliring 0 & QM = (100-180-8m)] 1 100-40+ OM 2 2 20m 60+QM 2 20m - QM 60 2 8QM = 60.20 2 IQM=40 P= 120-140 +20) (p = 60 Scanned by TapScanner Q€ -20

classmate Date Page b) Steckelberg medel model is the suitable model here where one firin is leader and other is follower from t's reaction function QE = 80-QM calculated above 2 Solking for firm in first P= 120-DE-OM = 120-OM-/80-om P = 240-20m - 80+QM 2 P = 160 -OM 2 TR = P.QM TR (160-QM = 60 80 DM 2 Sam Qm ² 2 2 MR 80 som 긴 (MRM-do-Qm MCM = 20 MRm = MCM 8- QM = 20 60 QM = 10 P= 1 P A 120 40+10) 50 Scanned by TapScanner

Data Page o from E will profer counnot model because therum each clocide for their quantities sunniltaneously as outpect produced is also larger than in stackelberg model from a will definitely porfer Stackelbereg model because , # thereen it is the leader and quantity produced by it is more than in Cowenot case are Interested Consumers will prefer stackelborg (part 6) because they In stackelberg price is lower than in this and model will be preferred by them in poice of the good Cournot Scanned by TapScanner