In the Cournot model, firms' profits are interdependent because each firm's output decision affects the market price and therefore the profits of all other firms in the market. This is the key element of strategic interaction in the model - firms must consider the likely response of their rivals when making production decisions.

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In the Cournot Model

Question 27

Multiple Choice

In the Cournot model

A) market price is unaffected by the actions of any individual firm.
B) firms do not have to worry about the strategies of the other firms.
C) firms' profits are independent.
D) firms' profits are interdependent.

Correct Answer: