An industry has two firms, a leader and a follower.The demand curve for the industry's output is given by p = 208 - 4q, where q is total industry output.Each firm has zero marginal cost.The leader chooses his quantity first, knowing that the follower will observe the leader's choice and choose his quantity to maximize profits, given the quantity produced by the leader.The leader will choose an output of
A)26.
B)17.33.
C) 13 .
D) 52.
E)None of the above.

Question

An industry has two firms, a leader and a follower.The demand curve for the industry's output is given by p = 208 - 4q, where q is total industry output.Each firm has zero marginal cost.The leader chooses his quantity first, knowing that the follower will observe the leader's choice and choose his quantity to maximize profits, given the quantity produced by the leader.The leader will choose an output of
A)26.
B)17.33.
C) 13 .
D) 52. 
E)None of the above.

Quizplus · Accepted Answer

The leader will choose an output of 26 units, which will maximize the industry's total profit.

An Industry Has Two Firms, a Leader and a Follower