Suppose that firms A and B are Cournot duopolists in the computer industry. Firm A's best response function:
A)lists firm B's profit-maximizing choice of output given any level of output by firm A.
B)lists firm A's profit-maximizing choice of output given any level of output by firm B.
C)lists firm B's profit-maximizing choice of price given any level of price by firm A.
D)lists firm B's profit-maximizing choice of price given any level of price by firm B.

Question

Quizplus · Accepted Answer

A best response function shows a firm's profit-maximizing output or price level given the other firm's output or price level. Therefore, Firm A's best response function would list its profit-maximizing output level given any level of output by Firm B. Firm A's best response function lists firm A's profit-maximizing choice of output given any level of output by firm B. This is because Firm A is trying to choose the output level that maximizes its own profit, taking into account the output of its competitor, Firm B. Therefore, Firm A's best response function shows how Firm A will adjust its own output based on the output level chosen by Firm B.

Suppose That Firms a and B Are Cournot Duopolists in the Computer