Other things being equal, the Cournot model suggests that profit-maximizing firms in an oligopolistic industry:
I. Charge a higher price than monopolies.
II. Charge a higher price than perfectly-competitive firms.
III. Charge a lower price than monopolies.
IV. Charge a lower price than perfectly-competitive firms.
Which of the following is correct?

Question

Quizplus · Accepted Answer

The Cournot model, which describes an oligopolistic market structure where firms decide on output to maximize profits under the assumption that their rivals' output levels are fixed, suggests that firms in such a market will charge prices that are higher than those in a perfectly competitive market (where firms are price takers) but lower than a monopoly (where a single firm controls the entire market). This is because, in an oligopoly, firms have some degree of market power but face competition from a few other firms, unlike in a monopoly where the single firm has complete market power, or in perfect competition where firms have no market power.

Other Things Being Equal, the Cournot Model Suggests That Profit-Maximizing