Homework Clinic
Social Science Clinic => Economics => Microeconomics => Topic started by: roselinechinyere27m on Jun 18, 2019
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The above figure shows the reaction functions for two pizza shops in a small isolated town. Compare the Cournot, Stackelberg, cartel, and competitive equilibria in terms of total output and welfare.
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If both firms are competitive price takers, they both produce 100 units, for a total of 200 units. As a cartel, they jointly produce a total of 100 units. If they behave as Cournot firms, they each produce 66.67 units, for a total of 133.33 units. If one firm is a Stackelberg leader, it produces 100 units and the follower produces 50 units, for a total of 150. In terms of output, and therefore social welfare, the structures are ranked as competitive, Stackelberg, Cournot, cartel.
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