If a Cournot duopolist announced that it will double its output,the other firm does not view the announcement as credible because
A) the announcing firm's profits will fall if it carries out the threat.
B) the other firm's profits will fall if the announcing firm carries out the threat.
C) the other firm's profits will rise if the announcing firm carries out the threat.
D) the other firm will double output also.

Question

Quizplus · Accepted Answer

If the Cournot duopolist doubles its output, it will cause an increase in total output, which will drive down market price and ultimately the announcing firm's profits. The other firm is aware of this and will likely not view the announcement as credible.

If a Cournot Duopolist Announced That It Will Double Its