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(Solved): Consider an industry comprised of two firms (i.e., a duopoly) that produce identical products. The i ...



Consider an industry comprised of two firms (i.e., a duopoly) that produce identical products. The inverse demand function has been estimated to be P = 40,000 ? 5Q, where Q is the combined output of the two firms. Each firm faces zero fixed costs. Firm 1 has a marginal cost of $1000, and is able to choose its level of output first. Firm 2 has a marginal cost of $2000 and chooses its level of output only after it first observes firm 1’s level of output. Determine the equilibrium price, as well as the equilibrium output levels and profits of each of the two firms. Is there an advantage to being the “first-mover” in choosing output?



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