Question

In a certain town, everyone spends a constant amount of money on sweets, whatever its price....

In a certain town, everyone spends a constant amount of money on sweets,
whatever its price. The goodies are produced at an average cost
constant to n equal companies. Show that if a> 0 then
there is a Cournot equilibrium, but if a = 0 then there is no such equilibrium.

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Answer #1

This show the fixed or constant demand of consumers for a particular good or a commodity i.e. they regard sweets as necessary or basic good so there is no effect on demand for the increase or decrease in price.

When goods are produced with average cost which is the total cost per unit of the output and marginal cost is the extra cost which is incurred when an additional unit of a product is produced.

As one of the assumptions of Cournot model is output is fixed so the firms will try take active participation in the production function so dividing the output among them when a>0 so there is an equilibrium but when a=0 there is no such equilibrium as there is single producer in the market making monopoly.

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