Two firms compete as a Stackelberg duopoly. The inverse market demand they face is P = 62 - 4.5Q. The cost function for each firm is C(Q) = 8Q.
The outputs of the two firms are:
A. QL = 48; QF = 24.
B. QL = 35; QF = 6.
C. QL = 6; QF = 3.
D. None of the statements associated with this question are correct.
An oligopoly market structure is a market that has a few firms that sell differentiated products. A Stackelberg duopoly is an industry with only two firms in the market which produce goods that are differentiated. The firms compete in the quantity of output to produce just like in Cournot oligopoly. However, firms in Stackelberg oligopoly choose their optimal quantities sequentially. That is, one firm chooses its quantity, the other firm observes and then chooses its quantity given the other firm's optimal quantity.
Answer and Explanation: 1
To solve for the equilibrium quantities in Stackelberg competition, we start by solving the follower's problem.
The demand curve is given as:
See full answer below.
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fromChapter 4 / Lesson 16
Learn what an oligopoly is and its market effects, and view examples of oligopolies. Understand non-price competition and how oligopolies affect price competition.