Firms 1 and 2 Compete in a Cournot Duopoly

question 6

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 increase its output.
• B) firm 2 will lose market share.
• C) firm 1 will enjoy higher profits.
• D) None of the preceding statements is correct.

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Definitions:

Calendar Year

A one-year period that begins on January 1 and ends on December 31, used as a financial and administrative period for many purposes.

Accrued Expense

Expenses that have been incurred but not yet paid or recorded in the financial statements.

Adjusting Entry

An entry made in the accounting records at the end of an accounting period to allocate income and expenditures to the period in which they actually occurred.

Unearned Rent

Income received before the period to which it applies, requiring deferred revenue recognition until the service (rental period) is provided.