In the Stackelberg model of oligopoly,the leader firm:
A)sets the price in the market which the follower firms take as given.
B)produces a larger quantity than follower firms and enhances its profits.
C)chooses output and prices irrespective of the other firms in the market.
D)produces a level of output which is equal to that of the follower firms.

Question

Quizplus · Accepted Answer

In the Stackelberg model of oligopoly, the leader firm makes the first move in deciding the quantity of output to produce, anticipating the reactions of the follower firms. This often results in the leader firm producing a larger quantity than the followers, thereby enhancing its profits. The leader firm's decision influences the market price and the quantity produced by the follower firms, but it does not set the price directly nor does it ignore the actions of other firms.

In the Stackelberg Model of Oligopoly,the Leader Firm