Consider a Cournot duopoly with firms 1 and 2 producing a homogeneous good, inverse demand where is total output. Firm 1 has constant average cost and firm 2 has constant average cost . In equilibrium,
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DSE 2010 Question 19: Monopolistic competition and oligopoly
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Consider a Cournot duopoly with firms 1 and 2 producing a homogeneous good, inverse demand P(x)=5-x where x is total output. Firm 1 has constant average cost 5/2 and firm 2 has constant average cost 3/2. In equilibrium, (A) only firm 1 produces a positive output (B) only firm 2 produces a positive output (C) both firms produce positive outputs with firm 1 producing more than firm 2 (D) both firms produce positive outputs with firm 2 producing more than firm 1
Monopolistic competition and oligopoly has come up 104 times in 7 exams since 2004.
What this question tests
This question is on Cournot competition, part of Monopolistic competition and oligopoly in Microeconomics.
Firms choosing quantities simultaneously, reaction curves, and equilibrium as the number of firms or costs change.
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