Question

What happens if you take the Stackelberg quantity for the entrant and substitute it into the Cournot BRF for the incumbent

Answer 1

Qa * = (300 - 75) / 2

Qa * = 112.5 < 150

Step-by-step explanation:

If the firm decides to substitute the entrant into Cournot BRF then the quantity will be declined. The commitment to maintain the entrant quantity to 150 is important for stackelberg outcome in the competition. The quantity is reduced to 112.5 instead of 150 if the Stackelberg is substituted by the Cournot BRF.