The market demand curve in a commodity chemical industry is given by Q = 600 – 3P, where Q is the quantity demanded per month and P is the market price in dollars. Firms in this industry supply quantities every month, and the resulting market price occurs at the point at which the quantity demanded equals the total quantity supplied. Suppose there are two firms in this industry, Firm 1 and Firm 2. Each firm has an identical constant marginal cost of $80 per unit.
a) Find the Cournot equilibrium quantities for each firm. What is the Cournot equilibrium market price? b) Assuming that Firm 1 is the Stackelberg leader, find the Stackelberg equilibrium quantities for each firm. What is the Stackelberg equilibrium price?
c) Calculate and compare the profit of each firm under the Cournot and Stackelberg equilibria. Under which equilibrium is overall industry profit the greatest, and why?
