Cournot Duopoly Model Features Analysis

This question asks to identify the true statements about Cournot's model of duopoly.

Evaluating Cournot Model Statements

Statement (a): Determinate and Stable Equilibrium

The Cournot model assumes that each firm chooses its output level, taking the output of its competitor as given. Under standard assumptions (like linear demand and constant marginal costs), this process leads to a unique, stable equilibrium where neither firm has an incentive to unilaterally change its output. Thus, statement (a) is true.

Statement (b): Representation of Nash Equilibrium

The equilibrium reached in the Cournot model is a classic example of a Nash equilibrium. In this equilibrium, each firm's chosen output level is the best response to the other firm's output level. No firm can increase its profit by changing its output alone, given the other firm's output. Therefore, statement (b) is true.

Statement (c): Monopoly Price vs. Duopoly Price

If duopolists combine to form a monopoly, they will act as a single entity to maximize joint profits. This typically involves restricting the total output compared to the output produced under duopoly. A reduction in total output leads to a higher market price than would prevail under duopoly or Cournot competition. Hence, the statement that the monopoly price would be less than the duopoly equilibrium price is false.

Conclusion on True Statements

Based on the analysis, statements (a) and (b) are true, while statement (c) is false.

Therefore, the correct option is the one stating that (a) and (b) are correct.