Which of the following is not an assumption of the Cournot model presented in the text?
A) There are two firms in an industry.
B) Each firm takes the output of the other firm as given.
C) Both firms maximize profits.
D) If the first firm cuts price, the second firm will follow and if the first raises price, the second will not follow.

Question

Quizplus · Accepted Answer

The Cournot model assumes that firms compete on quantity rather than price, and each firm decides its production level based on the output of the other firm, assuming the other firm's output is fixed. It does not include assumptions about firms' pricing strategies in response to competitors' price changes, as described in option D.

Which of the Following Is Not an Assumption of the Cournot