Page 291 - DECO401_MICROECONOMIC_THEORY_ENGLISH

Microeconomic Theory

Notes the reaction behaviour of these changes, then he must think about direct and indirect pricing. And it
also is possible to change in the quantity of product or its price does not affect the policy of opponent
seller. So duopoly can be described by taking mutual dependency or avoiding this mutual dependency.
The Cournot Edgeworth solution is already have which avoid this mutual dependency and this mutual
dependency is taken in Chamberlain solution.

16.2 The Cournot Model

In 1838, economist from France A. A. Cournot proposed this duopoly solution. He gave example by two
firms A and B as well as the lake of mineral water.
Assumptions: The Cournot model is based on these assumptions:
1. There are two independent sellers.
2. They produce a homogenous product which is mineral water.
3. The consumption of total production is essential because the product is destructive and non-volatile.
4. The number of buyers is more.
5. Every consumer knows about the market demand curve of the product.
6. The cost of production is assumed as zero.
7. Both the firms have equal cost and equal demand.
8. Every seller decides that what he wants to produce and sell in a period of time.
9. But from each, they do not know anything about the production of others.
10. Also, both the sellers assume constant to their opponent’s production.

Fig. 16.1

D

P S
L
P R
2
P G
1 T
O
C A FB D 1
MR MR
1 2

11. From each of them, no one has fixed the price of his product but accept the market demand price
on which product sells.
12. The entry of new firm is closed.
13. Every seller’s dream is to get maximum and pure profit and revenue. On these given assumptions,
suppose that two firms A and B extract water from waterfall of mineral water. Their market demand
curve is DD and marginal revenue curve is MR as shown in Fig. 16.1. The marginal cost of A and
1
1

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