In the Stackelberg model,the leader firm's residual demand curve _____.
A)has a slope that is twice that of the market demand curve
B)has a slope that is half the slope of the market demand curve
C)is the same as the market demand curve
D)is more inelastic than the market demand curve

Question

Quizplus · Accepted Answer

In the Stackelberg model, the leader firm can set its output first and the follower firm will then choose its output quantity. As a result, the leader firm's residual demand curve will be less elastic than the market demand curve due to the follower firm's production. Mathematically, the slope of the leader's residual demand curve is equal to half the slope of the market demand curve. Therefore, choice B is correct.

In the Stackelberg Model,the Leader Firm's Residual Demand Curve _____