In the Stackelberg Model,suppose the First-Mover Has MR = 15

question 7

Multiple Choice

In the Stackelberg model,suppose the first-mover has MR = 15 - Q₁,the second firm has reaction function Q2 = 15 - Q₁/2,and production occurs at zero marginal cost.Why doesn't the first-mover announce that its production is Q₁ = 30 in order to exclude the second firm from the market (i.e.,Q₂ = 0 in this case) ?

• A)In this case,MR is negative and is less than MC,so the first-mover would be producing less than the optimal quantity.
• B)In this case,MR is negative and is less than MC,so the first-mover would be producing too much output.
• C)This is a possible outcome from the Stackelberg duopoly under these conditions.
• D)We do not have enough information to determine if this is an optimal outcome for this case.

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