Consider a Stackelberg Duopoly with the Following Inverse Demand Function

question 120

Multiple Choice

Consider a Stackelberg duopoly with the following inverse demand function: P = 100 - 2Q₁ - 2Q₂.The firms' marginal cost are identical and given by MC_i(Q_i) = 2.Based on this information the leader's reaction function is

• A)r₁(Q₂) = 24.5 - 0.5Q₁ and r₂(Q₁) = 24.5 - 0.5Q₂.
• B)r₁(Q₂) = 24.5 - 0.5Q₂ and r₁(Q₂) = 24.5 - 0.5Q₁.
• C)Q₁ = 49 - 0.5Q₂ and Q₂ = 49 - 0.5Q₁.
• D)The Stackelberg leader does not react to the output decision of its rival.

---

Definitions:

Consumer Price Index

The Consumer Price Index (CPI) measures changes in the price level of a market basket of consumer goods and services purchased by households.

Bundle

A group of products or services sold together as a single package, often offered at a discounted price compared to purchasing each item individually.

Base Year

The base year is a specific year against which economic or financial indices are measured, allowing for comparison across different periods by setting a standard reference point.

Frictional Unemployment

Unemployment that occurs when people are between jobs or are entering the workforce for the first time, typically a short-term condition.