Question number #2Thanks The Bertrand model of oligopoly reveals that:capacity constraints are not important in determining market performance.perfectly competitive prices can arise in markets with only a few firms.changes in marginal cost do not affect prices.All of the statements associated with this question are true.QUESTION 2If firms are in Cournot equilibrium:each firm could increase profits by unilaterally increasing output.each firm could increase profits by unilaterally decreasing output.firms could increase profits by jointly increasing output.firms could increase profits by jointly reducing output.OOO

Cournot Model is a type of Oligopoly market structure. In this, all the firms are selling identical goods in the market. Each firm aims to maximize its profits by deciding the amount of quantity produced. The quantity of output decided by rival firms is taken as given. The equilibrium is attained at Nash Equilibrium.According to the Law of supply and demand, it is known that with a rise in the output or the rise in quantity sold the price will fall. Since more is supplied in the economy whereas less is demanded. Thus the price falls reducing the profits. Whereas in a situation when the quantity of output sold reduces. The prices will rise since more is demanded in the economy. Thus the rise in price will lead to higher profits. Therefore, the correct option is (d). Each firm can increase its profits by jointly reducing the output in the Cournot market structure. option (a) is incorrect since each firm cannot raise profits by unilaterally increasing output. In the Cournot market rival firms' output decisions are given and must be considered while deciding output. Since they influence the market profits cannot be taken by a single firm. Also raising output would lead to more quantity supplied thus reducing profits. option(b) is incorrect because each firm cannot raise profits by unilaterally decreasing output. In the Cournot market rival firms' output decisions are given and must be considered while deciding output. option (C) is incorrect because the firms do not increase profits by jointly increasing output. Since high output means a lower price. Thus profit level falls.Thus, the correct option is (d). Each firm can increase its profits by jointly reducing the output in the Cournot market structure.