In a Cournot Duopoly, We Find That Firm 1's Reaction

question 35

Multiple Choice

In a Cournot duopoly, we find that Firm 1's reaction function is Q₁ = 50 - 0.5Q₂, and Firm 2's reaction function is Q₂ = 75 - 0.75Q₁. What is the Cournot equilibrium outcome in this market?

• A) Q₁ = 20 and Q₂ = 60
• B) Q₁ = 20 and Q₂ = 20
• C) Q₁ = 60 and Q₂ = 60
• D) Q₁ = 60 and Q₂ = 20

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Definitions:

Marginal Cost

The investment required to manufacture one more unit of a product or service.

Diminishing Marginal Returns

A principle stating that as one factor of production increases, while others stay constant, the additional output will eventually decline.

Marginal Cost

The expansion in total financial commitment from producing one extra unit of a product or service.

Total Cost

The aggregate expense incurred in the manufacture or delivery of a product, including all overheads.