The Cournot reaction function:
A)maps out the best response a firm could take for each possible action of the rival firm.
B)maps out how firms work together to maximize profits.
C)is most applicable to monopoly markets.
D)shows how each firm makes its profit-maximizing decision while considering the entire market demand, the same as a monopolist.

Question

Quizplus · Accepted Answer

The Cournot reaction function maps out the best response a firm could take for each possible action of the rival firm, therefore the correct choice is A. The Cournot reaction function is a mathematical formula that determines the optimal quantity a firm should produce given its belief about the quantity being produced by its competitor. Therefore, it maps out the best response a firm could take for each possible action of the rival firm.

The Cournot Reaction Function