Which of the following is true in the Stackelberg model?
A) The first firm produces less than its rival.
B) The first firm produces more than its rival.
C) Both firms produce the same quantity.
D) Both firms have a reaction curve.

Question

Quizplus · Accepted Answer

In the Stackelberg model, the first firm (the leader) produces more than its rival (the follower) in order to maximize its own profits. This is due to the fact that the leader can take advantage of its position by setting its quantity before the follower does. The follower then chooses its quantity based on the leader's choice. Therefore, the leader produces more than the follower in order to gain an advantage in the market.

Which of the Following Is True in the Stackelberg Model