Consider a Stackelberg Duopoly with the Following Inverse Demand Function

question 106

Multiple Choice

Consider a Stackelberg duopoly with the following inverse demand function: P = 100 − 2Q₁ − 2Q₂.The firms' marginal costs are identical and are 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.

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Definitions:

Lower-Of-Cost-Or-Market

An accounting principle stating that inventory should be recorded at the lower of its historical cost or its current market price.

LIFO

Last In, First Out, a stock valuation approach that accounts for the most newly manufactured goods as being sold before all others.

Lower-Of-Cost-Or-Market

A rule in accounting that dictates inventory should be recorded at whichever is less between its original purchase cost and its present market value.

LIFO

Last In, First Out, an inventory costing method where the last items added to inventory are the first to be used or sold.