The figure given below represents the output choices of each of the two oligopolists, given the choices of its competitor.QA and QB are the quantities of output produced by Producer A and Producer B.The marginal cost of production is zero for both producers.

-Refer to Figure .Determine the total production in this market under Cournot equilibrium?
A)6 units
B)12 units
C)8 units
D)20 units

Question

The figure given below represents the output choices of each of the two oligopolists, given the choices of its competitor.QA and QB are the quantities of output produced by Producer A and Producer B.The marginal cost of production is zero for both producers.

-Refer to Figure .Determine the total production in this market under Cournot equilibrium?

-Refer to Figure .Determine the total production in this market under Cournot equilibrium?
A)6 units 
B)12 units 
C)8 units 
D)20 units

Quizplus · Accepted Answer

In the Cournot model, each producer chooses its output quantity to maximize its profit, taking the output of the competitor as given. The profit-maximizing output for Producer A occurs where its marginal revenue equals its marginal cost, given the output level of B. Similarly, the profit-maximizing output for Producer B occurs where its marginal revenue equals its marginal cost, given the output level of A.

From the figure, we can see that when Producer B produces QB=4 units, the profit-maximizing output for Producer A is QA=4 units. At this output level, the price is P=8.

Therefore, the total production under Cournot equilibrium is QA+QB=4+4=8 units.

The Figure Given Below Represents the Output Choices of Each