The above figure shows the reaction functions for two pizza shops ...

[crobinson2013]

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.
 
  What will be an ideal response?

Question 2

Why do patents stimulate research?
 
  A) Patents give firms time to do research.
  B) Patents give firms the opportunity to recover research costs and thus a profit motive.
  C) Firms would research as much even without patents.
  D) Patents don't stimulate research.

[otokexnaru]

Answer to Question 1

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.

Answer to Question 2

B

[crobinson2013]

Thank you

[otokexnaru]

No problemo