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 lose market share.
C) firm 1 will enjoy higher profits.
D) None of the statements is correct.

Question

Quizplus · Accepted Answer

In a Cournot duopoly, if firm 2 raises firm 1's marginal cost, firm 1 will likely reduce its output, leading to a potential increase in firm 2's market share and profits, not firm 1's.

Firms 1 and 2 Compete in a Cournot Duopoly