With a linear inverse demand function and the same constant marginal costs for both firms in a homogeneous product Stackelberg duopoly,which of the following will result? A) Profits of leader Profits of follower. B) Q_L = 2Q_F. C) P_L P_F. D) Profits of leader Profits of follower and Q_L = 2Q_F.

Question

With a linear inverse demand function and the same constant marginal costs for both firms in a homogeneous product Stackelberg duopoly,which of the following will result? A) Profits of leader > Profits of follower. B) Q_L = 2Q_F. C) P_L > P_F. D) Profits of leader > Profits of follower and Q_L = 2Q_F.

Quizplus · Accepted Answer

In a Stackelberg duopoly, the leader firm (first mover) will have a higher profit than the follower firm (second mover). Therefore, option A is correct. Also, in a homogeneous product market, the equilibrium quantity and price for both firms will be different in a Stackelberg model. The quantity produced by the leader firm will be twice the quantity produced by the follower firm, and the price charged by the leader will be lower than the price charged by the follower. Hence, options B and C are also correct. Therefore, the correct choice is D, as it combines the correct options.

With a Linear Inverse Demand Function and the Same Constant