Firms 1 and 2 compete in a Cournot duopoly.If firm 1 adopts a strategy that raises firm 2's marginal cost
A)firm 2 will increase its output.
B)firm 1 will lose market share.
C)firm 1 will enjoy higher profits.
D)all of the statements associated with this question are correct.

Question

Quizplus · Accepted Answer

By raising firm 2's marginal cost, firm 1 is reducing the output of firm 2, which leads to an increase in the market price. This benefits firm 1, which can now produce more and charge a higher price, leading to higher profits. Therefore, only choice C is correct.

Firms 1 and 2 Compete in a Cournot Duopoly