Question

Both firms in a Cournot duopoly would enjoy lower profits if:

Multiple Choice
one firm reduced output below the Cournot Nash equilibrium level, while the other firm continued to produce its Cournot Nash equilibrium output.
None of the answers is correct.
each firm simultaneously increased output above the Nash equilibrium level.
the firms simultaneously reduced output below the Nash equilibrium level.

Answer 1

each firm simultaneously increased output above the Nash equilibrium level.

Step-by-step explanation:

A French mathematician, Antoine Augustine Cournot developed the Cournot duopoly in his economic model “Researches into the mathematical principles of the theory of wealth”, of 1838.

Cournot duopoly also known as the Cournot competition, is an economic model where two (2) business firms having identical cost functions compete in a oligopolistic market of imperfect competition with homogeneous products.

Under the Cournot duopoly, the competing firms offer identical products and thus, choose an amount or quantity to produce independently and at the same time because they cannot collude.

Both firms in a Cournot duopoly would enjoy lower profits if each firm simultaneously increased output above the Nash equilibrium level.

Hence, the advantage of the Cournot duopoly is that, it inhibits competing firms from deviating unilaterally.