Question

The inverse-demand curve for oil in the Middle East is given by P = 20 – Q, where Q is measure in barrels and P is measured in USD. Saudi Arabia can produce barrels of oil for a constant marginal cost of $1, while Iran can produce barrels of oil for a constant marginal cost of $3. Solve for the unique Nash Equilibrium in the Middle Eastern oil market assuming that Iran chooses its production quantity before Saudi Arabia chooses its production quantity. Compare this to the simultaneous move duopoly (Cournot).

Answer 1

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