Asked by Sarah Wallace DesChamps on Mar 10, 2024



A duopoly faces the inverse demand curve p  160  2q.Firm 1's total cost function is given by C1(q1)  8q1 and firm 2's total cost function is given by C2(q2)  10q2.In a Cournot equilibrium,

A) the firm with the lower marginal cost produces more.
B) both firms will produce the same amount.
C) the firm with the higher marginal cost produces more to cover the higher costs.
D) the reaction function for both firms is the same since both firms have a constant marginal cost.
E) More than one of the above is correct.

Cournot Equilibrium

A condition in a duopoly market where each firm chooses the quantity to produce to maximize its own profit, assuming the other's output is fixed.

Marginal Cost

An additional cost incurred by producing one more unit of a product or service, a key concept in economics for decision-making.

Inverse Demand Curve

A graphical representation showing the relationship between the price of a good and the quantity demanded when price is the independent variable.

  • Leverage the theory of Cournot equilibrium to assess the production levels of enterprises within markets defined by duopolistic competition.
  • Analyze the impact of cost structures on firms' strategic decisions and market outcomes.

Verified Answer

Dalehny Vineisha

Mar 10, 2024

Final Answer :
Explanation :
In a Cournot equilibrium, each firm assumes that the other firm's output will remain constant when it determines its own output level. Thus, both firms will choose their output levels based on their own marginal costs. Since Firm 1 has a lower marginal cost than Firm 2, it will produce more output than Firm 2. Therefore, the correct answer is A: the firm with the lower marginal cost produces more.