Two firms compete as a Stackelberg duopoly. The demand they face is P = 100 - 3Q. The cost function for each firm is C(Q) = 4Q. The profits of the two firms are: A) π_L = $384; π_F = $192. B) π_L = $192; π_F = $91. C) π_L = $56; π_F = -$28. D) π_L = $56; π_F = $28.

Question

Quizplus · Accepted Answer

In a Stackelberg duopoly, the leader firm (L) chooses its output first, and the follower firm (F) reacts to it. Solving for the equilibrium quantities and substituting into the profit functions, the leader's profit is $384 and the follower's profit is $192.

Two Firms Compete as a Stackelberg Duopoly