Monopoly and Monopolistic Competition
Monopoly and Monopolistic Competition
Monopoly and Monopolistic Competition
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Oligopoly Case 3: Cournot Equilibrium<br />
•Two firms: each wishes to maximize profit.<br />
•However, oweve , they ey make e concurrent co c e decisions dec s o s<br />
•Each sets MC = MR<br />
•Each recognizes that its MR depends on<br />
market dem<strong>and</strong> <strong>and</strong> therefore on the decision<br />
of its rival.<br />
•Optimal Optimal output for each firm depends on<br />
output of rival – reaction functions<br />
•An equilibrium involves:<br />
Oligopoly<br />
•Firm A making its profit maximizing<br />
output choice given the choice of firm B<br />
•Firm Firm B making its profit maximizing<br />
output choice given the choice of firm A<br />
Q(1)*<br />
Q(1)<br />
Cournot EQUILIBRIUM<br />
Q(1)=fQ(2)<br />
1's reaction function<br />
Q(2)*<br />
Q(2)=fQ(1)<br />
2's reaction function<br />
Page 12<br />
Q(2)
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