Question

In a Stackelberg oligopoly, an increase in the costs of the follower firm will mean

a.) An increase in the leader's quantity of output and an increase in the follower's quantity

b.) An increase in the leader's quantity of output and a decrease in the follower's quantity.

c.) A decrease in the leader's quantity of output and an increase in the follower's quantity.

d.) A decrease in the leader's quantity of output and a decrease in the follower's quantity.

Answer 1

The answer is B -)  An increase in the leader's quantity of output and a decrease in the follower's quantity.

because in Stackelberg oligopoly model ,where the leader firms moves first , then the follower firms follows sequentially. so if the increase in the costs of the follower firm will mean that the follower firm will increase its price in the market which result in increase in the leader's quantity because its price are low and decrease in follower's quantity .