Which of the following is true of the Cournot model of a duopoly?
A) The products sold by the firm are imperfect substitutes.
B) The equilibrium price in a Cournot duopoly is higher than the price in a monopoly.
C) The demand curve facing each firm is horizontal.
D) The market price is determined by the output produced by the firm with the larger market share.
E) The duopoly equilibrium lies between the pure-monopoly and purely competitive outcomes.

Question

Quizplus · Accepted Answer

The Cournot model of a duopoly assumes that the firms produce differentiated products, which are imperfect substitutes. The demand curve facing each firm is downward sloping but not perfectly elastic, so the market price is not determined solely by output but also affected by demand elasticity. The equilibrium output and price in a Cournot duopoly lies between the output and price levels of a pure monopoly and purely competitive market, hence the name "monopolistic competition."

Which of the Following Is True of the Cournot Model