In a market where two firms compete by setting quantity,the Cournot equilibrium has which of the following characteristics?
A) The two firms' reaction functions intersect.
B) There is no incentive for the two firms to collude.
C) The two firms' isoprofit curves intersect one another at the highest point.
D) The two firms' reaction functions intersect at the highest point where the two firms' isoprofit curves intersect one another.

Question

Quizplus · Accepted Answer

The Cournot equilibrium is where the two firms' reaction functions intersect at the highest point where their isoprofit curves intersect. This means that both firms are producing the optimal level of output given the output of the other firm, and neither firm has an incentive to deviate from this output level unilaterally. Therefore, there is no advantage for collusion between the two firms.

In a Market Where Two Firms Compete by Setting Quantity,the