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Question: suppose the aircraft industry consists of two firms airbrush a...

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with the long run equilibr turn. [2] Suppose the aircraft industry consists of two firms, AirBrush (A) and Boing (B). The market demand for aircraft is Q 30 hP, where P is the aircraft price and Q is the aircraft market quantity (i.e., Q qA qB, with qA being the quantity produced by AirBrush and qB being the quantity produced by Boing). Further, suppose AirBrush and Boing have the following total cost functions: TC 10qAand TCB 20qB. A. Initially behaving as Cournot competitors, graph the reaction functions. What is the intuition behind them having a negative slope B. Find the Cournot/Nash equilibrium values of price and quantity for each firm. What will be each firms profit? C. Now, often low cost producers become market leaders. Accordingly, suppose Airbrush becomes a Stackelberg leader, while Boing becomes a Stackelberg follower. What will be the Stackelberg equilibrium values of price and quantity for each firm? What will be each firms profit?
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