Firms 1 and 2 compete in a Cournot duopoly.If firm 1 adopts a strategy that raises firm 2's marginal cost:
A) firm 2 will increase its output.
B) firm 1 will lose market share.
C) firm 1 will enjoy higher profits.
D) All of the statements associated with this question are correct.

Question

Quizplus · Accepted Answer

If firm 1 raises firm 2's marginal cost, firm 2 will decrease its output, allowing firm 1 to increase its market share and charge higher prices, leading to higher profits. Therefore, only option C is correct.

Firms 1 and 2 Compete in a Cournot Duopoly