In a Stackelberg oligopoly A) the leader moves first, and the ...

[nramada]

In a Stackelberg oligopoly
 
  A) the leader moves first, and the follower chooses its price in the second stage of the game.
  B) the leader moves first, and the follower chooses its output in the second stage of the game.
  C) both firms act simultaneously, but one chooses price and the other output level.
  D) there is no Nash equilibrium.

Question 2

Suppose a monopolist faces the constant price elasticity demand curve:
 
  p = Q
  where  < 0. The monopolist has a constant marginal cost of c.
  a. If  < -1, can you determine what price and quantity will the monopolist set? Explain.
  b. If 0 >  > -1, what is the price and quantity the monopolist will set?

[Qarqy]

Answer to Question 1

B

Answer to Question 2

a. The necessary condition is:
(1 + )Q = c
For  < -1, the condition cannot be met  the monopolist can always raise the price and increase total revenue (and reduce total cost).
b. The optimal quantity is (c/(1 + ))1/ and price is c/(1 + ).