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 follower's reaction function is: A) r_F(Q_L) = 24.5 − 0.5Q_F. B) Q_L = 49 − 0.5Q_F. C) r_F(Q_L) = 24.5 − 0.5Q_L. D) Q_F = 49 − 0.25Q_L.

Question

Quizplus · Accepted Answer

The follower's reaction function is derived by maximizing its profit given the leader's quantity. The correct formula reflects the follower's optimal output as a function of the leader's output, taking into account the inverse demand and marginal cost conditions.

Consider a Stackelberg Duopoly with the Following Inverse Demand Function