5) Consider a Stackelberg model where two rms have identical marginal production costs. a) The gure below depicts the residual demand for the leader, rm
5) Consider a Stackelberg model where two rms have identical marginal production costs. a) The gure below depicts the residual demand for the leader, rm I, in Stackelberg after reasoning backwards. Explain the gure in your own words. If rm 1 chooses not to produce (i.e., qr =0), what will the horizontal distance between the market demand curve and the residual demand curve be (the Coumot quantity, the monopoly quantity or the competitive quantity)? Economics 121 Page 3 .q 1 b) Explain why a Stackelberg leader produces more output than a rm in Coumot competition. c) Explain why prots are higher for a Stackelberg leader than for a rm in Coumot competition
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