A new firm enters a market which is initially serviced by a Cournot duopoly charging a price of $20.What will the new market price be should the three firms coexist after the entry?
A) $20
B) Below $20
C) Above $20
D) None of the preceding answers is correct.

Question

Quizplus · Accepted Answer

In a Cournot model, firms choose quantities to produce, and the market price is determined by the total quantity supplied. When a new firm enters the market, the total quantity supplied increases, leading to a decrease in the market price. Therefore, the new market price will be below $20.

A New Firm Enters a Market Which Is Initially Serviced