Suppose Two Duopolists Operate at Zero Marginal Cost

question 34

Multiple Choice

Suppose two duopolists operate at zero marginal cost.The market demand is p = a - bQ.If firm 1 is the Stackelberg leader,what level of output will it choose?

• A) q₁ = (a - bq₂)/2b
• B) q₁ = (a - 2bq₂)/2b
• C) q₁ = a/b
• D) q₁ = a/2b

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Definitions:

Put Option

A financial contract that gives the holder the right, but not the obligation, to sell a specified amount of an underlying asset at a set price within a specified timeframe.

In-The-Money

A term used in options trading to describe an option that has intrinsic value, where the strike price is favorable compared to the current market price of the underlying asset.

Stock Price

The current price at which a share of a company is being bought or sold in the stock market.

Exercise Price

The price at which the holder of an option can buy (in the case of a call) or sell (in the case of a put) the underlying security or commodity.