Which is true of output-choice models of oligopoly behavior? A. The Stackelberg, but not the Cournot, model can be constructed as a sequential game. B. There is no relationship between any output-choice model and sequential games. C. Both the Stackelberg and Cournot models can be constructed as sequential games. D. The Cournot, but not the Stackelberg, model can be constructed as a sequential game. E. Neither the Cournot nor the Stackelberg model can be constructed as a sequential game, but other output-choice models can be.
Question
Which is true of output-choice models of oligopoly behavior? A. The Stackelberg, but not the Cournot, model can be constructed as a sequential game. B. There is no relationship between any output-choice model and sequential games. C. Both the Stackelberg and Cournot models can be constructed as sequential games. D. The Cournot, but not the Stackelberg, model can be constructed as a sequential game. E. Neither the Cournot nor the Stackelberg model can be constructed as a sequential game, but other output-choice models can be.
Solution
The correct answer is A. The Stackelberg, but not the Cournot, model can be constructed as a sequential game.
Here's why:
In the field of economics, specifically in the study of oligopoly behavior, there are several models that are used to understand and predict the actions of firms in a market where there are a small number of firms that dominate. Two of these models are the Cournot and Stackelberg models.
The Cournot model assumes that firms choose their output simultaneously. In other words, they make their decisions at the same time, without knowing what the other firm will do. This model cannot be constructed as a sequential game because it does not involve any sequential decision making.
On the other hand, the Stackelberg model assumes that one firm, known as the leader, chooses its output first, and then the other firm, known as the follower, chooses its output based on the leader's decision. This model can be constructed as a sequential game because it involves sequential decision making.
Therefore, the statement "The Stackelberg, but not the Cournot, model can be constructed as a sequential game" is true.
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