Question

ultiple choice

For Cournot model firms MC (move first) and TG,

to make a tough commitment MC directly  (raises, lowers) its  (price, quantity),

which would likely lead the product price to  (not change, rise, fall),

which by itself directly causes TG’s total  (revenue, cost) to  (rise, fall),

which causes TG’s total profit to  (not change, rise, fall).

Strategic effect is  (MC, TG) directly  (raises, lowers) its  (price, quantity),

which would likely lead the product price to  (not change, rise, fall),

which by itself directly causes MC’s total  (revenue, cost) to  (rise, fall),

which causes MC’s total profit to  (not change, rise, fall).  

It definitely would be profitable for MC to make the tough commitment if the magnitude of commitment’s strategic effect on MC’s total profit is  (equal to, greater than, less than) the magnitude of commitment’s direct effect on MC’s total profit.

Answer 1

For Cournot model firms MC move first and TG to make a tough commitment MC directly rises its price,which would likely lead the product price to rise,
which by itself directly causes TG’s total cost to rise, which causes TG’s total profit to fall.

Strategic effect is MC directly raises its price, which would likely lead the product price to rise, which by itself directly causes MC’s total cost to rise,
which causes MC’s total profit to fall.

It definitely would be beneficial for MC to make the tough commitment if the magnitude of commitment’s strategic effect on MC’s total profit is less than the magnitude of commitment’s direct effect on MC’s total profit.