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Duopoly Model Essay Topics & Paper Examples

Implications of the Cournot Duopoly Model

The Cournot Duopoly Model is a generalization that describes industry structures when more than one firm (having considerable market power) interacts and competes in the same market. The model assumes that if two rival firms producing a homogenous product with the same cost functions (usually treated as common knowledge) split a market, the firms will respond to each other’s output production until a state of equilibrium is reached. The model predicts that the firms will choose the level of output going towards equilibrium. If two firms produce a certain good, the profit gained is a decreasing function of the total number of goods that the two firms produce. Both firms are aware that price is a decreasing function of total…