Answer to Question #20101 in Microeconomics for Alisandru

Question

Answer the following questions for the Stackelberg duopoly model:

a. What assumptions do the firms make about the reactions of the other firm?

b. How are the equilibrium price and quantity determined?

c. Contrast the Stackelberg equilibrium price and quantity with the equilibrium price and quantity under perfect competition and under monopoly.

d. Starting from the equilibrium assume that the market demand increases. Explain how the new equilibrium is determined.