Question:
Below is an example of the quantity of output produced by two competing firms under a
Cournot Oligopoly models. Answer the questions below.
1. In the game depicted above, what is the equilibrium strategies that player A and B must
produce?
2. If the two players decide to collude, at what quantity both firms should produce?
Answer:
1. The Nash equilibrium for player A and player B is at quantity 6 because this is where
reaction A and reaction B intersects.
2. Player A and Player B will produce 18 if they decide to collude. Each of the players
will have to produce half of this monopoly outcome, meaning it will be divided into
two. For player A, it will produce a quantity output of 9, and for player B, it will also
produce a quantity output of 9. The sum of the two will then have a total of 18 when
they combine their production quantity.
Below is an example of the quantity of output produced by two competing firms under a
Cournot Oligopoly models. Answer the questions below.
1. In the game depicted above, what is the equilibrium strategies that player A and B must
produce?
2. If the two players decide to collude, at what quantity both firms should produce?
Answer:
1. The Nash equilibrium for player A and player B is at quantity 6 because this is where
reaction A and reaction B intersects.
2. Player A and Player B will produce 18 if they decide to collude. Each of the players
will have to produce half of this monopoly outcome, meaning it will be divided into
two. For player A, it will produce a quantity output of 9, and for player B, it will also
produce a quantity output of 9. The sum of the two will then have a total of 18 when
they combine their production quantity.
