Chapter 10 - Cournot, Stackelber and Bertrand

Chapter 10 - Cournot, Stackelber and Bertrand - Cournot...

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Cournot, Stackelberg and Bertrand – Principles of Economics (Ch.10)/Article 07/12/10 The reaction function: Where pricing or output decisions are involved there is a theoretical infinity of choices a firm can make with related payoffs. Reaction function/Reaction curve shows the preferred response of a firm in terms of a decision variable as a response to a value of that variable chosen by the other firm(s). The Cournot Model (simultaneous): This looks at firms on the basis that they compete by determining how much they will produce or capacity they supply. Demand conditions are given Decide what supply given what other firms in the market supply Each firm knows what market demand is and has to decide on its profit maximising level of production. Monopoly Output (Qm): for firm one I serves the whole market II produces nothing closer to one’s own monopoly output higher profits Perfectly Competitive Output (Qpc) for firm two I produces nothing II serves the whole market Joining Qm/Qm and Qpc/Qpc: monopoly or competitive output divided
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