Asked by Sherwin Sanpedro on Jul 12, 2024
Verified
Suppose that the demand curve for an industry's output is a downward-sloping straight line and there is constant marginal cost.Then the larger the number of identical firms producing in Cournot equilibrium, the lower will be the price.
Cournot Equilibrium
The Cournot equilibrium is a concept in economic theory where firms reach a state of balance in quantity and price in a duopoly, where each firm's output decision best responds to the output decision of the other firm.
Downward-Sloping
A term describing a curve or line that decreases in value as it moves from left to right, often used to describe demand curves in economics.
- Understand the basic concepts of Cournot and Bertrand models in oligopoly contexts.
- Appraise the contribution of market demand and cost functions to the stabilization of prices and quantities in oligopoly contexts.
Verified Answer
GB
Gracie BrackeenJul 15, 2024
Final Answer :
True
Explanation :
In a Cournot equilibrium, each firm chooses its output level based on the assumption that its competitors' outputs are fixed. As the number of identical firms producing increases, the total industry output increases, leading to a decrease in price since the demand curve is downward-sloping. This is because each firm's output has a smaller impact on the overall market quantity and price. Therefore, the larger the number of firms producing in Cournot equilibrium, the lower the price.
Learning Objectives
- Understand the basic concepts of Cournot and Bertrand models in oligopoly contexts.
- Appraise the contribution of market demand and cost functions to the stabilization of prices and quantities in oligopoly contexts.