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Cournot Model

R

Rupel

Member
Hi, can someone please explain how under the Cournot model, industry profits will be less than under a monopoly or cartel. Kindly clarify. Thanks.
 
Consider the standard Cournot diagram in Section 5 of Module 8 of the Course Notes.

Suppose Firm A now assumes that Firm's B output will be zero, in which case Firm A would be a monopolist. Then Firm A's D=AR curve would shift to the right and now correspond to the industry D=AR curve. It's MR curve would also shift to the right, leading to an increase in both QA and PA.

The profit of any firm is equal to the area below its MR curve (which equals it total revenue) and above its MC curve (which equals its total variable costs), less any fixed costs. As this area will have increased, so Firm A's profit will have increased.
 
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