In Pasturetown, only Lorenzo and Neha can raise free-range chickens on their farms. Assume that Lorenzo and Neha can collect and sell a large quantity of eggs at no cost and that free-range eggs sold outside Pasturetown cannot be transported into the town for sale.
Suppose that, in this market, Lorenzo decides how many eggs per day he is going to sell, and then Neha makes her decision after observing Lorenzo's quantity choice. The market demand for eggs is given by Q=20−P. Based on this demand, Lorenzo's and Neha's best-response functions are given on the following graph.Box 1 Options: ($25) ($1) ($16) (-$1)
Box 2 Options: (will) (will not)
Box 3 Options: (the Stackelberg Equilrium) (Point 2)