In a Cournot oligopoly, a decrease in a firm\'s marginal cost leads to a. Reduce

Question

In a Cournot oligopoly, a decrease in a firm's marginal cost leads to

a. Reduced output and a higher market price

b. Reduced output and a lower market price

c. Higher output and a higher market price

d. Higher output and a lower market price

When two firms compete as a Cournot duopoly, the resulting market price is
______________ the price a monopolist with the same market demand and
(greater than, smaller than, the same as) costs would choose.

When two firms competing in duopoly decide to collude, the resulting market price is
_____________ the price a monopolist with the same market demand and
(greater than, smaller than, the same as) costs would choose.

Explanation / Answer

The correct option is D. With a fall in marginal cost, the firms would produce more output, and thus would compete with each other, leading to a lower price in order to have a market power.

When firms in cournot duopoly competes with each other, ends up charging a price that is SMALLER THAN that of monopolist with same demand and cost. This is because, when both the firms compete with each other they start behaving like a monopolistic competition. So there price charged is lower than what monopolist charges.

Whereas if they both both collude, the resulting market price is SAME AS that of the monopolist. Because they both would collude and start behaving like one firm, dominating the market.

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