Stackelberg Duopoly Question

timer Asked: Dec 7th, 2015

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Consider a leader-follower quantity competition game between two rival firms (i.e. Stackelberg Duopoly). Suppose firm 1 is the leader (so firm 1 chooses its level of output first) and firm 2 is the follower (so firm 2 observes the level of output that firm 1 produces, then decides how much to produce in response). Unlike the example from class, the two firms may have differing cost functions. Assume the following general form:

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