Suppose that Barack and Michelle are duopolists. Barack is producing 300 units of output, and Michelle is producing 400 units of output. When Michelle produces 400 units, Barack maximizes profit by producing 300 units. When Barack produces 300 units of output, Michelle maximizes profit by producing 400 units. Barack and Michelle are
A)in a competitive market.
B)at a Nash equilibrium.
C)producing with no deadweight loss.
D)selling at a price higher than the monopoly price.

Question

Quizplus · Accepted Answer

When both firms are producing at their profit maximizing level given the output of the other, they are at a Nash equilibrium. In this case, Michelle is producing 400 units given that Barack is producing 300 units and Barack is producing 300 units given that Michelle is producing 400 units. This is the best outcome for both firms since neither can unilaterally change their output level and increase their profits.

Suppose That Barack and Michelle Are Duopolists