Question
Consider two firms that sell undifferentiated products for which the demand is linear. Assume that both firms have the same constant marginal cost and no
Consider two firms that sell undifferentiated products for which the demand is linear. Assume that both firms have the same constant marginal cost and no fixed costs.
- Let M denote the profit either firm would earn if it were the only firm in the market. You should assume Mis positive.
- Let C denote the profit each firm would earn in the two-player, simultaneous-move Cournot game.
- Let L denote the profit either firm would earn if it chose its quantity as the Leader in the sequential-move LeaderFollower game.
Which of the following relationships holds?
a. M < C < L b. C < L < M c. L < C < M d. L < M < C e. C < M < L
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