(a) It yields determinate and stable equilibrium for the duopolists
(b) It is an adequate representation of Nash equilibrium
(c) If the duopolists combine to form a monopoly, the price changed by them will be less than the equilibrium price without their combining together.
Of the above which statements are true ? Choose from the code below :
This question asks to identify the true statements about Cournot's model of duopoly.
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.
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.
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.
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.
| LIST-I | LIST-II |
| 1. Absolute Advantage | a. Paul Rosenstein Rodan |
| 2. Theory of Big Push | b. Adam Smith |
| 3. Theory of low level Equilibrium trap | c. Richard R. Nelson |
| 4. Balanced Growth Theory | d. Ragner Nurkse |