Firms 1 and 2 Compete in a Cournot Duopoly

question 42

Multiple Choice

Firms 1 and 2 compete in a Cournot duopoly.If firm 2 adopts a strategy that, inadvertently, lowers firm 1's marginal cost:

• A)Firm 1's reaction function will shift up.
• B)Firm 2's reaction function will shift up.
• C)Firm 2's reaction function will shift down.
• D)Firm 1's reaction function will shift down.

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Definitions:

Homeostasis

The self-regulating process by which biological systems tend to maintain stability while adjusting to conditions that are optimal for survival.

Steady State

A condition in which all aspects of a system are in equilibrium or unchanging over time, often used in physics and economics to describe stable systems.

William McDougall

An influential psychologist known for his work on social psychology, including the concept of the group mind and the role of instinct in human behavior.

Psychoanalytic Theory

A set of theories originated by Sigmund Freud, which focus on the unconscious mind and childhood experiences as determinants of an individual's psychological state and behavior.