In Farmland, only Carlos and Madeline can raise free-range chickens on their farms. Assume that Carlos and Madeline can collect and sell a large quantity of eggs at no cost and that free-range eggs produced outside Farmland cannot be transported into the town for sale. The following questions will walk you through the process of computing the equilibrium result using the Stackelberg model. Suppose that, in this market, Carlos decides how many eggs per day he is going to produce, and then Madeline makes her decision after observing Carlos's quantity choice. The market demand for eggs is given by Q = 16 - P. Use the purple line (diamond symbol) on the following graph to illustrate Madeline's best-response function as determined by the quantity of eggs Carlos decides to produce. Since Carlos knows how Madeline will react depending on the quantity of eggs he sells, he can internalize this effect by deriving the net demand for his eggs. In the first blank column of the following table, enter the quantity of eggs Madeline will sell, given each of the quantities listed for Carlos's production. Then add these quantities to solve for the total production of eggs and enter the sum in the Total Production column. Finally, determine the market price that will emerge, given the total production, and enter that price in the final column.
The following graph shows Carlos's marginal cost (MC) for producing eggs. Use the green point (triangle symbol) to plot the net demand (ND) for Carlos's eggs based on the prices listed in the preceding table. Then, use the grey line (star symbol) to graph Carlos's marginal revenue (MR) curve. Finally, use the black point (plus symbol) to indicate Carlos's profit-maximizing level of output and the resulting market price for a gross of eggs. Note: Dashed drop lines will automatically extend to both axes. True or False: If Carlos cannot commit to the output level you determined, then Carlos and Madeline will both end up producing around 5 gross of eggs. O True O False