The Cournot Model is an economic theory that describes how firms compete in an oligopolistic market by deciding the quantity of a homogeneous product to produce. In this model, each firm chooses its output level simultaneously, with the aim of maximizing its profit, given the output levels of its competitors. The market price is determined by the total quantity produced by all firms, represented as , where is the number of firms.
The firms face a downward-sloping demand curve, which implies that the price decreases as total output increases. The equilibrium in the Cournot Model is achieved when each firm’s output decision is optimal, considering the output decisions of the other firms, leading to a Nash Equilibrium. In this equilibrium, no firm can increase its profit by unilaterally changing its output, resulting in a stable market structure.
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