Asked by Prabhjot Bansal on Jun 13, 2024
Verified
Which of the following is true in the Stackelberg model?
A) The first firm produces less than its rival.
B) The first firm produces more than its rival.
C) Both firms produce the same quantity.
D) Both firms have a reaction curve.
Stackelberg Model
A strategic game theory model that describes a market structure in which one firm (the leader) sets its output or price first, and then other firms (followers) make their decisions sequentially.
Reaction Curve
A graphical representation in economics that shows how one player’s optimal strategy choice depends on the strategy choice of another player.
- Utilize the Stackelberg model to gain insights into the strategic gains involved in sequential decision-making activities.
Verified Answer
AJ
Afnan jawataJun 15, 2024
Final Answer :
B
Explanation :
In the Stackelberg model, the first firm (the leader) produces more than its rival (the follower) in order to maximize its own profits. This is due to the fact that the leader can take advantage of its position by setting its quantity before the follower does. The follower then chooses its quantity based on the leader's choice. Therefore, the leader produces more than the follower in order to gain an advantage in the market.
Learning Objectives
- Utilize the Stackelberg model to gain insights into the strategic gains involved in sequential decision-making activities.