Question

Cournot Equillibrium

Why is the Cournot equilibrium an equilibrium? O A. Given the other firm's level of production, both firms are maximizing profits and cannot improve their situation by u O B. Both firms operate at minimum long-run average cost under a Cournot equilibrium, so changes to output would reduce long-run profits O c. Both firms operate at zero profit under a Cournot equilibrium, so they would face negative profits if they change output. O D. There are short-run barriers to exit in a Cournot duopoly, so both firms cannot alter their output levels nilateraly aitering their level of output Even if they can't collude, why don't firms set their outputs at the joint proft-maximizing levela (e, the lovola thoy would have choson had thay colludedy? O A. The midpoint of the collusion curve (ie, the collusive outcome) lies below the reaction curves, so both firms have an incentive to increase output under the O B. ° C. O D. Cournot duopoly. Given that other firm produces at the collusive level, a firm could increase their own profits by increasing output above the collusive level. Both A and B are correct Both A and B are incorrect

Answer 1

- A is correct

The firms in Cournot market produce at the profit maximising level and they have no incentive to deviate.

- C is correct

More output can be produced when current level of output is below reaction functions. Firms have an incentive to increase production to earn higher profits if the other firms produce at the colluding quantity.