Three firms produce the same product with different cost functions. Firm 1's marginal cost is 10, firm 2's marginal cost is 8, and firm 2's marginal cost is 4.
First consider a Stackelberg game with these 3 firms. Firm 1 chooses the quantity of its production first, then firms 2 and 3 chooses their quantities simultaneously after observing firm 1's quantities. Let S denote firm 1's profit in the subgame perfect equilibrium of this Stackelberg game.
Also consider a Cournot game in which the same three firms choose their quantities simultaneously. Let C denote firm 1's profit in the Nash equilibrium of the Cournot game.
Select the correct statement from the following:
A. C is never strictly greater than S.
B. Whether C is strictly greater than S depends on the inverse demand curve.
C. C is always strictly greater than S.
Three firms produce the same product with different cost functions. Firm 1's marginal cost is 10, firm 2's marginal cost is 8, and firm 2's marginal cost is 4.
First consider a Stackelberg game with these 3 firms. Firm 1 chooses the quantity of its production first, then firms 2 and 3 chooses their quantities simultaneously after observing firm 1's quantities. Let S denote firm 1's profit in the subgame perfect equilibrium of this Stackelberg game.
Also consider a Cournot game in which the same three firms choose their quantities simultaneously. Let C denote firm 1's profit in the Nash equilibrium of the Cournot game.
Select the correct statement from the following:
| A. C is never strictly greater than S. | ||
| B. | Whether C is strictly greater than S depends on the inverse demand curve. | |
| C. | C is always strictly greater than S. |
