(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 :
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.
Important Questions from Microeconomics
Which of the following statement is correct?
I. Indifference curves are sloping from left to right.
II. Higher indifference curve gives a higher level of utility.
If in a production process, all inputs are tripled, which of the following statements follows?
I. If the output is tripled, then decreasing returns to scale apply.
II. When the output is doubled, constant returns to scale apply.
III. If the output is more than tripled, then increasing returns to scale apply.
A market, in which there are a large number of firms, homogeneous product, infinite elasticity of demand for an individual firm and no control over price by firms, is termed as________.
If the two goods are substituted, then the indifference curve will be:
The government multiplier is given by (where c = MPC and t = tax rate)
