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(Solved): The Government Has Announced Its Plans To License Two Firms To Serve A Market Whose Demand Curve Is...


The government has announced its plans to license two firms to serve a market whose demand curve is given by P = 92 -1 Q. The technology is such that each can produce any given level of output at zero cost, but once each firm’s output is chosen, it cannot be altered.

a. What is the most you would be willing to pay for one of these licences if you knew you would be able to choose your level of output first (assuming your choice was observable by the rival firm)?

b. How much would your rival be willing to pay for the right to choose second?



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a) Then you will be the leader. You expect your rival to produce Q2. Keeping the Stackelberg model in view the profit function of second firm is its revenue func
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