What happens in a duopoly if both firms try to act as the Stackelberg leader?
What will be an ideal response?
If both firms think they are the leader, they will maximize profits subject to the other firm's response function. Each firm will produce twice what the other firm thinks it is producing. As a result, output and price are driven to the competitive equilibrium.
You might also like to view...
Suppose drug companies come out with new wonder-drugs capable of curing the common cold. What is the most likely effect on the demand for physicians' services?
A) The demand will become more elastic. B) The demand will become more inelastic. C) The demand will decrease if government or private insurance pays all or most of the physicians' fees. D) The demand will increase if the drugs can only be obtained with a physician's prescription. E) The demand will not change, though the quantity demanded almost certainly will.
Which of the following situations is sufficient to represent current demand for a car?
A. You have plenty of money to buy it, but you can't decide if you want a motorcycle or a car. B. You have enough money to buy it, and you are willing to spend the money on the car. C. You've decided you want a car, and you can possibly borrow the money from a bank. D. You want to buy a motorcycle and a car, and you'll have enough money for both in two years.
Figure 11.3Figure 11.3 shows demands and costs for a monopolistically competitive firm. When the firm's demand curve shifts from D1 to D2 and to D3:
A. the demand for the firm's product is decreasing. B. the firm's average cost of production is increasing. C. the firm's marginal revenue curve also shifts to the left. D. All of these
In the Great Depression, the financial sector collapsed, as
A. many banks closed. B. the bond market boomed, so people withdrew most of their funds from banks and invested heavily in bonds. C. the stock market boomed, so people withdrew most of their funds from banks and invested heavily in stocks. D. banks engaged in ruinous competition.