Consider two firms that play a Stackelberg competition game. Market demand is given by p= 200-(2/3)*(q1+q2)
a). Assume that the cost function for firm 2 is c2(q2) = 3q2. Find the best response function of firm 2 assuming that firm 2 is the follower.
b). Assume that c1(q1) = 2q1 for firm 1, who is the Stackelberg leader. Find the Stackelberg leader quantity in this game. Explain why you cannot do part b before part a in this question. Explain the problems that firm 2 might face in solving step a above.
c). Find the profits, Total Revenues, Total Costs, for both the leader and the follower.