The market inverse demand curve is P = 90 - Q, where Q is the total market output consisting of Firm 1's output, q₁, and Firm 2's output, q₂. Both firms have a constant marginal cost of $10. If Firm 1 selects its output level first, how much output does each firm produce?

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In a Stackelberg competition where Firm 1 moves first, it will choose its output to maximize profits given the reaction of Firm 2. The total market output for profit maximization given the inverse demand P = 90 - Q and constant marginal cost of $10 leads to Firm 1 producing 40 units and Firm 2 producing 20 units, as Firm 1 takes advantage of its first-mover position to capture a larger share of the market.

The Market Inverse Demand Curve Is P = 90 -