Question
There are only two firms in a market, a leader firm and a follower firm. The leader firm chooses its quantity of output first, and
There are only two firms in a market, a leader firm and a follower firm. The leader firm chooses its quantity of output first, and the follower firm chooses its quantity of output after seeing the leader firm's choice. (The total quantity supplied to the market then determines the market price.) Which firm will make higher profits?
A) The leader firm, because it will produce a greater quantity than the follower firm.
B) The follower firm, because it will produce a greater quantity than the leader firm.
C) The follower firm, because it will set a lower price to attract more customers.
D) The leader firm, because it will sell at a higher price and make greater profits.
E) Neither. The two firms will make equal profits.
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