Answer to Question #87390 in Macroeconomics for anicia antoine

Question

The demand curve for luminous socks is given by:
Q = 50 – 0.5P
And the total cost function for any firm in the industry is:
C = 4Qi'
(i) Assume Stackleberg behavior with firm 1 as the leader and firm 2 as the
follower.
(i) Determine equilibrium outputs (7 marks)
(ii) Price (1 mark)
(iii) Profit levels for the two firms. (2 marks)
(k) Indicate the Cournot, Stackleberg, collusive and competitive outcomes on the
market diagram. (5 marks)
(l) Calculate the change in consumer surplus when the industry moves from
Cournot to Stackleberg equilibrium. What is the value of the deadweight loss
in Stackleberg equilibrium? Show that the combined consumer and producer
surplus in the Stackleberg equilibrium is less than the surplus to consumers
with a competitive solution. (6 marks)
(m) Can leadership in the Stackleberg model of duopoly ever produce
lower profit than the equilibrium profit level of a duopolist in the Cournot
model? Explain. ? (4 marks)

Answer 1

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