Suppose Cournot duopolists firms (A and B) face the same market demand curve, and initially have identical costs. Firm A figures out a way of reducing its marginal cost. At the new Nash-Cournot equilibrium,

Question

Quizplus · Accepted Answer

Firm A's reduced marginal cost allows it to produce more output at a lower cost. As a result, it will increase its output, and firm B will reduce its output in response, resulting in a shift in the market share towards A. This will lead to a lower market price for the product, as both firms compete to increase their market share. However, overall industry output will increase, as will firm A's profits, while firm B's profits will decrease.

Suppose Cournot Duopolists Firms (A and B) Face the Same