1
$\begingroup$

I am confused that If the marginal costs of the two firms are different, is it still a Cournot model? I saw many examples that give a fixed marginal cost of the products.

$\endgroup$

1 Answer 1

2
$\begingroup$

Yes, you can have different marginal costs in a Cournot model. Here is a simple example:

Two firms with marginal costs of $c_1$ and $c_2$ competing in quantities where inverse demand is $p=A-b(q_1+q_2)$. Firms are maximizing: $$\max_{q_i} \; (A-b(q_1 + q_2))q_i - c_i q_i$$ Taking a derivative and solving you can find unique quantities, e.g. $$q_1 = \frac{A+2b(c_1 -A) - c_2}{4b^2 -1}$$

You mention that marginal costs are often given as "fixed". This is often done for simplicity. It can be challenging to solve a Cournot model with increasing/decreasing returns and an equilibrium may not exist.

$\endgroup$
2
  • $\begingroup$ May I ask do you use some apps to write formulas? $\endgroup$
    – Nick
    Oct 29 at 20:53
  • 1
    $\begingroup$ No, you can find more information about how to write math (LaTeX) on Stack Exchange here: economics.stackexchange.com/editing-help#latex $\endgroup$
    – Fića
    Oct 29 at 20:56

Your Answer

By clicking “Post Your Answer”, you agree to our terms of service, privacy policy and cookie policy

Not the answer you're looking for? Browse other questions tagged or ask your own question.