Consider a Stackelberg Duopoly with the Following Inverse Demand Function

Consider a Stackelberg duopoly with the following inverse demand function: P = 100 - 2Q₁ - 2Q₂.The firms' marginal cost are identical and given by MC_i(Q_i) = 2.Based on this information the leader's reaction function is

A) r₁(Q₂) = 24.5 - 0.5Q₁ and r₂(Q₁) = 24.5 - 0.5Q₂.
B) r₁(Q₂) = 24.5 - 0.5Q₂ and r₁(Q₂) = 24.5 - 0.5Q₁.
C) Q₁ = 49 - 0.5Q₂ and Q₂ = 49 - 0.5Q₁.
D) The Stackelberg leader does not react to the output decision of its rival.

Correct Answer:

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