Two firms compete as Stackelberg duopolists in a market with inverse demand given by , where p is the per-unit price, qi is the output for Firm i (either Firm
1 or 2), and . Firm 1 is the leader in this market. Firm 1 has a constant marginal cost of $4 per unit, and Firm 2 has a constant marginal cost of $8 per
unit. Assume no fixed costs.
What is the optimal output for Firm 1? Round to two decimals
What is the optimal output for Firm 2? Round to two decimals
What is the equilibrium price in this market? Round to two decimals
What is the profit for each firm? Round to two decimals
Sample Solution