An Industry Has Two Firms Producing at a Constant Unit

An industry has two firms producing at a constant unit cost of $10 per unit. The inverse demand curve for the industry is p = 110 - .5q. Suppose that firm 1 is a Stackelberg leader in choosing its quantity (i.e., firm 1 chooses its quantity first, knowing that firm 2 will observe firm 1's quantity when it chooses its own output.) How much output will firm 2, the follower, produce?

A) 40 units.
B) 15 units.
C) 20 units.
D) 50 units.
E) 30 units.

Correct Answer:

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