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Cournot’s Model of Duopoly
An Overview of the Cournot Model
This section discusses the general constituents of Cournot’s model and the assumption under which the model operates. The section discusses the application of Cournot’s model in explaining how the firms operate. The section stipulates that Cournot’s model takes into the assumption that one firm’s activity affects another firm’s activity. Cournot’s model denotes that firms strategize while keeping t into mind the likely strategy that might be taken by the rival firm. These assumptions have been said to be very arbitral and not hold water in the real-world market scenario.
Conjectural Variation
This section discusses the general assumption that constitutes the conjectural variation theory. According to the theory, firms act believing that their rival firm might take counteraction. For instance, the theory denotes that firms make the decision to increase or reduce production based on the strategy that the rival firm will take.
Consistent Conjecture
The section discusses some of the assumptions and scholarly work that has been done on the topic. The section stipulates some of the critics that economist have cited as a shortcoming to the theory. For instance, the theory does not correlate to game theory.
Analysis of Conjectural Variation in Relation to Cournot’s Models
This section denotes the behaviour of the firm in relation to the behaviour of the rivalry firm, as stipulated in Cournot’s model. The section cites Cournot’s assumption with the respective shortcomings in the real-world application. For instance, in the real-world scenario, firms always strategize based on market conditions and improvise measures according to the result received on each strategy. Rarely is it possible for firms to strategies based on rival firms unless the rival business tactics are schemes meant to destroy the rival firm.
Work Cited
Dobbs, Ian M. Managerial economics. Oxford University Press, 2000
Png, Ivan. Managerial economics. Routledge, 2013.
Wilkinson, Nick. Managerial economics: a problem-solving approach. Cambridge University Press, 2005.