Firms 1 and 2 Compete in a Cournot Duopoly

question 41

Multiple Choice

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

• A)Firm 1 will reduce its output.
• B)Firm 2 will gain lose share.
• C)Firm 1 will enjoy higher profits.
• D)None of the statements associated with this question are correct.

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Definitions:

FIFO Inventory Method

An accounting method for valuing inventory that assumes the first items purchased are the first ones sold.

Ending Inventory

The total value of all inventory that a company has in stock at the end of an accounting period.

Decreasing Unit Costs

A situation in which costs per unit of output fall as the volume of production increases, often due to economies of scale.

Higher Amount

A term that refers to a value that is greater when compared with another quantity or measure.