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Stackelberg Duopoly

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11. The inverse demand curve for a Stackelberg duopoly is . The leader's cost structure is . The follower's cost structure is .
a. Determine the reaction function for the follower.
b. Determine the equilibrium output levels for both the leader and the follower.
c. What are the profits for the leader? For the follower?

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Solution Summary

The expert determines the reaction function for the follwer. Stackelberg Duopoly demand curve is examined.

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first we write down the profit functions for both firms (remember profit = revenue-cost = price X sales quantity - cost; and price = 10000-6Q = 10000 - 6Ql - 6Qf, because total quantity = leader's quantity + follower's quantity)

leader's profit = (10000-6Ql - 6Qf)Ql - 15Ql = 10000Ql - 6Ql^2 - 6QlQf - 15Ql

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