Firms 1 and 2 Compete in a Cournot Duopoly

question 18

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.

---

Definitions:

Amortized Cost

The amount at which a financial asset or liability is measured at initial recognition minus principal repayments, plus or minus the cumulative amortization using the effective interest method.

Trading Securities

Financial instruments that are purchased and held primarily for selling them in the near term to generate income on short-term price differences.

Marketable Securities

Financial instruments that can be easily converted into cash, typically with high liquidity and short-term maturities.

Equity Method

An accounting technique used to record investments in other companies, where the investment is initially recorded at cost and adjusted thereafter for the investor's share of the investee’s profits or losses.