Which of the following is true of the Cournot Model? Firm's choose quantities to maximize joint profits. Firms choose prices simultaneously Firms act sequentially in decision-making Firms choose quantities simultaneously
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Step 1: The Cournot model is a model of oligopoly in which firms choose quantities simultaneously. Show more…
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In the Cournot model, a firm maximizes profit by selecting A. its output, assuming that other firms keep their output constant. B. its price, assuming that other firms keep their price constant. C. its price, assuming that other firms will retaliate. D. its output, assuming that other firms will retaliate.
Anjali K.
Akash M.
Suppose that Creamland and Dairy King are the only two firms that sell ice cream. The following payoff matrix shows the profit (in millions of dollars) each company will earn depending on whether or not it advertises: Dairy King Advertise Doesn't Advertise Creamland Advertise 10, 10 18, 2 Doesn't Advertise 2, 18 11, 11 For example, the upper right cell shows that if Creamland advertises and Dairy King doesn't advertise, Creamland will make a profit of $18 million, and Dairy King will make a profit of $2 million. Assume this is a simultaneous game and that Creamland and Dairy King are both profit-maximizing firms. If Creamland decides to advertise, it will earn a profit of _____ million if Dairy King advertises and a profit of ______ million if Dairy King does not advertise. If Creamland decides not to advertise, it will earn a profit of ______ million if Dairy King advertises and a profit of ______ million if Dairy King does not advertise. If Dairy King advertises, Creamland makes a higher profit if it chooses (to advertise/not to advertise). If Dairy King doesn't advertise, Creamland makes a higher profit if it chooses (to advertise/not to advertise). Suppose that both firms start off not advertising. If the firms act independently, what strategies will they end up choosing? - Both firms will choose to advertise. - Creamland will choose to advertise and Dairy King will choose not to advertise. - Creamland will choose not to advertise and Dairy King will choose to advertise. - Both firms will choose not to advertise. Again, suppose that both firms start off not advertising. If the firms decide to collude, what strategies will they end up choosing? - Both firms will choose not to advertise. - Creamland will choose to advertise and Dairy King will choose not to advertise. - Creamland will choose not to advertise and Dairy King will choose to advertise. - Both firms will choose to advertise.
Manasvee S.
Recommended Textbooks
Principles of Economics
Principles of Microeconomics for AP® Courses
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