1. In the Stackelberg model of oligopoly, which firm sets a higher price in the equilibrium?

In the Stackelberg model of oligopoly, which firm sets a higher price in the equilibrium?

a. The leader firm

b.The follower firm

c.It depends - either the leader or the follower may set a higher price.

d. Neither firm will sets a higher price - although the quantity they produce may differ, the market will determine one price for all firms based on their aggregate supply.

2. A market has inverse demand function

P = 80 - 2(q₁ + q₂)

where q₁ is the quantity produced by firm 1 and q₂ is the quantity produced by firm 2.

The two firms have identical cost functions, with marginal cost MC = 8.

What is firm 1's best response function?

A market has inverse demand function

P = 80 - 2(q₁ + q₂)

where q₁ is the quantity produced by firm 1 and q₂ is the quantity produced by firm 2.

The two firms have identical cost functions, with marginal cost MC = 8.

What is firm 1's best response function?

A.q₁ = 18 - q₂/2

B. q₁ = 40 - q₂/2

C. q₁ = 20 - q₂

D. q₁ = 40 + q₂/2