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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