In Problem 4, suppose that the market demand curve for bean sprouts is given by P = 1,680 - 2Q, where P is the price and Q is total industry output. Suppose that the industry has two firms, a Stackleberg leader and a follower. Each firm has a constant marginal cost of $80 per unit of output. In equilibrium, total output by the two firms will be
A) 600.
B) 400.
C) 200.
D) 800.
E) 100.

Question

In Problem 4, suppose that the market demand curve for bean sprouts is given by P = 1,680 - 2Q, where P is the price and Q is total industry output. Suppose that the industry has two firms, a Stackleberg leader and a follower. Each firm has a constant marginal cost of $80 per unit of output. In equilibrium, total output by the two firms will be 
A) 600.
B) 400.
C) 200.
D) 800.
E) 100.

Quizplus · Accepted Answer

In a Stackelberg model, the leader firm moves first and the follower firm moves second. The leader firm maximizes its profit considering the reaction of the follower firm. Given the demand curve P = 1680 - 2Q and marginal cost of $80, the leader firm will produce more than the follower. Solving for equilibrium output, the total output by the two firms will be 600 units.

In Problem 4, Suppose That the Market Demand Curve for Bean