In differentiated-goods duopoly business, with inverse demand curves:
P1 = 10 – 5Q1 – 2Q2
P2 = 10 – 5Q2 – 2Q1
and per unit costs for each and every firm equal to 1.
a) For a Cournot game - recommend Firm 1’s best response function? Determine the Nash equilibrium?
b) For a Stackelburg game - what is the Firm 1’s best response function? Determine the Nash equilibrium?