Question

1) In Cournot equilibrium each firm chooses the quantity that maximizes its own profits assuming that the firm’s rival will continue to sell at the same price as before.In Cournot equilibrium each firm chooses the quantity that maximizes its own profits assuming that the firm’s rival will continue to sell at the same price as before.

Q: Why it is false?

2) Suppose that the demand curve for an industry’s output is a downward-sloping straight line and there is constant marginal cost. Then the larger the number of identical firms producing in Cournot equilibrium, the lower will be the price.

Q: Why it is true?

3) In the Cournot model, each firm chooses its actions on the assumption that its rivals will react by changing their quantities in such a way as to maximize their own profits.

Q: Why it is false?

Answer 1

1)

Answer: False statement.

Under the Cournot model, firms compete on the basis of quantity not the price. Here base of competition is price which is not true with respect to the cournot model

2)

Answer: True statement.

When more firms enter the market, the supply rises and competition becomes intense. The price level starts moving towards the MC of production.

3)

Answer: False statement.

Under the Cournot Model, firm assumes that its rival will change level of production or would continue to produce same level of output.