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April 24, 2014

Homework Help: Economics - Cournot Model

Posted by Jennifer on Friday, January 26, 2007 at 4:33pm.

There is one firm with a marginal cost of 0. It's monopoly price is 10. Another firm enters, also with zero marginal cost. Using the Cournot model, would would the new oligopoly price be?

Can this question be answered without more information about the demand for the product? If not, then assume a elasticity of demand of 0.2.

I am trying to make a very simple model what happens when a new firm enters the market for a prescription drug. That's why elasticity of demand is low, if you're sick price doesn't matter too much.

Now that I think about it, you do have to know the elasticity of demand. Sorry, should have thought that through a bit more.

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