Both Firms in a Cournot Duopoly Would Experience Lower Profits

question 16

Multiple Choice

Both firms in a Cournot duopoly would experience lower profits if:

• A) there was an increase in marginal production costs.
• B) each firm simultaneously increased output above the Nash equilibrium level.
• C) one firm reduced output below the Cournot Nash equilibrium level, while the other firm continued to produce its Cournot Nash equilibrium output.
• D) there was an increase in marginal production costs and one firm reduced output below the Cournot Nash equilibrium level, while the other firm continued to produce its Cournot Nash equilibrium output.

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Definitions:

Inferior Goods

Goods for which demand decreases as the income of the consumer increases, opposite to normal goods.

Normal Goods

Goods for which demand increases as consumers' income increases, holding all other factors constant.

Cross-Price Elasticity

A measure of how the quantity demanded of one good changes in response to a price change of another good.

Quantity Demanded

The total amount of a good or service that consumers are willing and able to purchase at a given price in a specific period.