In the Cournot model, the firm chooses:
A)its optimal price, holding the price of its competitors constant.
B)its best response to the price changes of the competitor firm.
C)its optimal level of output, holding the output of the other firm constant.
D)the level of output that would optimize profits for all firms.

Question

Quizplus · Accepted Answer

In the Cournot model, firms choose their optimal level of output, holding the output of the other firm constant. This is because each firm assumes that its competitors will not change their level of output in response to its own production decisions. Therefore, each firm's profit-maximizing output level can be found by considering how its own output affects the market price, which in turn affects the other firm's profits. In the Cournot model, each firm assumes that its competitors' output will remain constant, so it determines its optimal level of output based on this assumption. This leads to a Nash equilibrium in which each firm's output is the best response to the other's output. Therefore, choice C is the correct answer as the firm chooses its optimal level of output, holding the output of the other firm constant.

In the Cournot Model, the Firm Chooses