Question

1)Why do Cournot Firms produce more than Monopolists?

2)Why don't Cournot Firms each produce 1/2 of the monopolist strategy and split the monopoly profits?

Answer 1

1) A monopolist tries to maximise own profit. However, in cournot firms each firm tries to maximise its profit, taking into account the best response of the other. As a rseult of this competition, the total production in the market is more than the monopolist level of production.

2) The higher profits from deviating from 1/2 of monopolist output for each firm makes it difficult for the firms to collude. Given such a collusion, each firm would have incentive to cheat as the strategy is not Nash Equilibrium.