Demand for light bulbs can be characterized by Q = 100 − P, where Q is in millions of boxes of lights sold and P is the price per box. There are two producers of lights, Everglow and Dimlit. They have identical cost functions: TC = 10Q + 1/2Q2 and Q = QE + QD.
a.Assume they act as Cournot duopolists. How much will each firm produce? What will the price be? How much are profits for each firm?
b.Now assume that the Everglow manager guesses correctly that Dimlit is playing Cournot and decides to play Stackelberg. Now how much will each firm produce? What will the price be? How much are the profits for each firm?
c.If the managers of the two companies collude, what are the equilibrium values of QE, QD, and P? What are each firm’s profits?