Best Drones (BD) and Finest Drones (FD) comprise a duopoly in the industry of drones and they have to decide how many drones to produce annually. The drones produced by the two firms are perceived by consumers as homogeneous products. The (inverse) market demand curve is PP = 50 − QQ, while the total output is given by QQ = qqBBBB + qqFFFF. Due to differences in labour cost, BD’s unit cost equals $3 thousand and FD’s unit cost equals $7 thousand.
(a) Assuming that the firms simultaneously choose their output levels, compute the equilibrium price as well as each firm’s output and profits in the market equilibrium.
(b) Will the above results change if Finest Drones moves first? Discuss briefly these results based on
the theory of first/second mover advantage