Stackelberg Duopolists,Firm 1 and Firm 2,face Inverse Market Demand

question 18

Multiple Choice

Stackelberg duopolists,Firm 1 and Firm 2,face inverse market demand Both have marginal cost, Firm 1 produces output Q₁ = 15 and Firm 2 produces output Q₂ = 7.5.What is the price level in this market and what is the level of industry profits (i.e.the sum of Firm 1 and Firm 2's profits) ?

• A) P = 27.5; industry profits = 168.75
• B) P = 30; industry profits = 172.6
• C) P=32.5; industry profits = 180
• D) P=34; industry profits = 184.2

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Definitions:

Payoffs

The returns or benefits received from a particular action or investment.

Nash Equilibrium

A concept within game theory where each player's strategy is optimal, given the strategies of other players, and no player has anything to gain by changing their own strategy alone.

Dominant Strategy

A strategy in a game theory context that is best for a player regardless of what strategies other players choose.

Nash Equilibria

Situations in a strategic game where no player can benefit by changing their strategy while the other players keep theirs unchanged.