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Questions › DSE › DSE 2004 › Q12
2 marks, −1Microeconomics › Monopolistic competition and oligopoly › Stackelberg and sequential competitionHardabout 3 min

DSE 2004 Question 12: Monopolistic competition and oligopoly

For the setting with p=1−q1−q2p=1-q_1-q_2p=1−q1​−q2​, C1(q1)=cq1C_1(q_1)=cq_1C1​(q1​)=cq1​ and C2(q2)=q2/2C_2(q_2)=q_2/2C2​(q2​)=q2​/2: suppose c=1/2c=1/2c=1/2 and Firm 111 can credibly commit itself to producing any output level q1q_1q1​ that it publicly announces. What announcement q1q_1q1​ will it make?

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For the setting with p=1-q₁-q₂, C₁(q₁)=cq₁ and C₂(q₂)=q₂/2: suppose c=1/2 and Firm 1 can credibly commit itself to producing any output level q₁ that it publicly announces. What announcement q₁ will it make? (A) 1/2 (B) 1/3 (C) 1/4 (D) 1/5

Also written as: For the setting with p=1-q_1-q_2, C_1(q_1)=cq_1 and C_2(q_2)=q_2/2: suppose c=1/2 and Firm 1 can credibly commit itself to producing any output level q_1 that it publicly announces. What announcement q_1 will it make?

Monopolistic competition and oligopoly has come up 104 times in 7 exams since 2004.

What this question tests

This question is on Stackelberg and sequential competition, part of Monopolistic competition and oligopoly in Microeconomics.

A leader moving first and a follower reacting, in quantities or prices.

TestStop has 12 past-paper questions on this subtopic.

Practise Monopolistic competition and oligopolyMore on Stackelberg and sequential competition

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Question from the DSE 2004 paper. Solutions are TestStop's own. Not affiliated with or endorsed by any examination authority.