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Author Question: Explain why the intersection of the best-response functions is the Cournot equilibrium. What will ... (Read 29 times)

Tazate

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on: Jul 1, 2018
Explain why the intersection of the best-response functions is the Cournot equilibrium.
 
  What will be an ideal response?

Question 2

If the price of a competitive firm's output increases, the firm responds in the short run by demanding more labor.
 
  What will be an ideal response?
Microeconomics ¦ Perloff ¦ 8th Edition
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SVictor

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Reply #1 on: Jul 1, 2018
Answer to Question 1

On a best-response function, a firm selects the profit-maximizing level of output given the level of output it believes the other firm will produce. At the intersection of the best-response functions, what one firm believes the other firm will produce actually is the amount the other firm produces. Thus, neither firm has an incentive to change the level of output.

Answer to Question 2

True. The firm wishes to sell more output and can do so only by hiring more labor.


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