Firms 1 and 2 compete in a Cournot duopoly.If firm 2 adopts a strategy that raises firm 1's marginal cost:
A) firm 1 will increase its output.
B) firm 2 will gain market share.
C) firm 2 will enjoy lower profits.
D) All of the statements associated with this question are correct.

Question

Quizplus · Accepted Answer

In a Cournot duopoly, if firm 2 adopts a strategy that increases firm 1's marginal cost, firm 1 will produce less, leading to firm 2 gaining market share as it can capture the portion of the market that firm 1 loses due to its increased costs.

Firms 1 and 2 Compete in a Cournot Duopoly