- Cournot’s model explains duopoly, where two firms independently decide output assuming the rival will not react.
- Each firm aims to maximise profit with zero marginal cost and identical demand conditions.
- Through successive adjustments, both firms reach equilibrium where each supplies one-third of the market at the same price.
- This equilibrium shows mutual interdependence and applies to oligopoly markets as well.
Topics
Microeconomic Theory
Demand
- Introduction to Microeconomics and Macroeconomics
- Microeconomics
- Macroeconomics
- Macroeconomics Vs Microeconomics
- Introduction to Demand
- Meaning of Demand
- Features of Demand
- Types of Demand
- Determinants of Demand
- Demand Function
- Quantity Demanded and Demand
- Law of Demand
- Demand Schedule
- Demand Curve
- Individual Demand Curve to Market Demand Curve
- Slope of the Demand Curve
- Linear Demand Curve
- Reasons for the Downward Slope of the Demand Curve
- Importance of the Law of Demand
- Exceptions to the Law of Demand
- Movement Along the Demand Curve
- Change in Demand – Shift in Demand Curve
- Difference Between Extension and Increase in Demand
- Difference Between Contraction and Decrease in Demand
- Cross Price Effects
- Relationship Between Income and Demand
- Impact of Tastes and Preferences on Demand for a Commodity
- Industry Demand Vs Firm Demand
- Concept of Utility
- Cardinal Utility Analysis / Marginal Utility Analysis
- Types of Marginal Utility
- Total Utility and Marginal Utility
- Forms of Utility
- Features of Utility
- Relationship Between Total Utility and Marginal Utility
- Law of Diminishing Marginal Utility
- Exceptions of the Law of Diminishing Marginal Utility
- Importance of the Law of Diminishing Marginal Utility
- Consumer's Equilibrium through Cardinal Utility Approach
- Law of Equi-Marginal Utility
- Exceptions of the Law of Equi-marginal Utility
- Importance of the Law of Equi-marginal Utility
- Ordinal Utility Analysis/Indifference Curve Analysis
- Indifference Schedule
- Indifference Curve
- Indifference Map
- Marginal Rate of Substitution (MRS)
- Assumptions of Indifference Curve Analysis
- Properties of Indifference Curves
- Price Line or Budget Line
- Consumer's Equilibrium through Indifference Curve Approach
- Comparison of Utility Theory and Indifference Curve Theory
- Consumer's Equilibrium through Indifference Curve Approach
- Relationship Between Marginal Rate of Substitution and Marginal Utility
Theory of Income and Employment
Elasticity of Demand
- Introduction to Elasticity of Demand
- Meaning and Types of Elasticity of Demand
- Price Elasticity of Demand
- Classification of Price Elasticity - Degrees of Price Elasticity of Demand
- Methods of Measuring Price Elasticity of Demand
- Percentage or Proportionate Method
- Total Expenditure Method
- Point Method (Geometric Method)
- Arc Elasticity of Demand
- Revenue Method
- Numerical Problems of Price Elasticity of Demand
- Factors Affecting Price Elasticity of Demand
- Importance of Elasticity of Demand
- Income Elasticity of Demand
- Types of Income Elasticity of Demand
- Importance of Income Elasticity
- Cross Elasticity of Demand
- Туpes of Cross Elasticity of Demand
- Limitations of Cross Elasticity of Demand
- Importance of Cross Elasticity of Demand
Supply
- Concept of Supply
- Individual and Market Supply
- Distinction Between Supply and Stock
- Determinants of Supply
- Supply Function
- Law of Supply
- Supply Schedule
- Supply Curve
- Derivation of Market Supply Curve From Individual Supply Curves
- Explanation of the Law of Supply
- Time Period and Supply
- Exceptions to the Law of Supply
- Movement Along the Supply Curve Or Expansion and Contraction of Supply
- Shift of the Supply Curve or Change in Supply
- Expansion of Supply and Increase in Supply
- Contraction of Supply and Decrease in Supply
- Elasticity of Supply
- Meaning and Types of Elasticity of Demand
- Price Elasticity of Supply
- Categories (Degrees) of Elasticity of Supply
- Measurement of Elasticity of Supply > Percentage Method
- Measurement of Elasticity of Supply > Geometric or Point Method
- Determinants of Elasticity of Supply
- Importance of Elasticity of Supply
Money and Banking
Balance of Payments and Exchange Rate
Market Mechanism
- Introduction to Market Mechanism
- Basic Concepts of Equilibrium and Equilibrium Price
- Equilibrium Price and Quantity in a Competitive Market
- Changes in Equilibrium
- Effects of Changes (Shifts) in Demand on Equilibrium Price and Equilibrium Quantity
- Effects of Changes (Shifts) in Supply on Equilibrium Price and Equilibrium Quantity
- Effects of Simultaneous Changes (Shifts) in Demand and Supply
- Some Special Cases of Equilibrium
- Importance of the Element in the Determination of Price
- Applications of Tools of Demand and Supply Price Control
- Mаximum Price Legislation or Price Ceiling and Rationing
- Minimum Price Legislation or Floor Price
- Important Areas of Applications of Tools of Demand and Supply Curves
- Meaning of Perfect Competition
- Assumptions and Conditions of Perfect Competition
- Pure and Perfect Competition
- Time Element in the Theory of Price Determination
- Determination of Equilibrium Prices
- Normal Price and Law of Returns
- Comparison between Market Price and Normal Price
- Practical Applications of Tools of Demand and Supply Analysis
Public Finance
Concepts of Production
- Concept of Production
- Product
- Factors of Production
- Production Function
- Short-run and Long-run
- Features of Production Function
- Types of Production Functions
- Some Basic Concepts - Total, Average and Marginal Physical Products
- Relationship between Average Product (AP) and Marginal Product (MP)
- Relationship between Total Product (TP) and Marginal Product (MP)
- Returns to a Factor - Laws of Returns to a Variable Factor
- Law of Variable Proportions
- Statement of the Law of Variable Proportions
- Assumptions of the Law of Variable Proportions
- Illustration of the Law of Variable Proportions
- Three Stages of Production
- Explanation of the Law of Variable Proportions
- Stages of Operation and the Decision to Produce
- Conditions Or Causes of Applicability
- Applicability of the Law of Variable Proportions
- Changes in Production
- Returns to a Factor or Law of Returns
- Law of Variable Proportions and Returns to Scale Compared
- Variation of Output in the Long Run - Returns to Scale
- Scale of Production
- Concept of Indivisibility
- Economies of Scale
- Diseconomies of Scale
National Income
Cost and Revenue
- Introduction to Cost of Production
- Money Cost Or Accounting Cost / Explicit Cost
- Economic Cost
- Opportunity Cost
- Real Cost
- Private and Social Cost
- Fixed Cost and Variable Cost
- Different Cost Concepts
- Total Cost Curves
- Average Cost Curves
- Marginal Cost (MC)
- Relationship between Average and Marginal Cost
- Long-Run Cost Curves
- Long-run Average Cost (LAC) Curve
- Long-run Marginal Cost (LMC) Curve
- LAC Curve U-shaped - Economies and Diseconomies of Scale
- Numerical Problems Long-run Cost Curves
- Revenue Concepts
- Behaviour of Revenue Under Different Market Structures
- Relationship Between Total, Average and Marginal Revenues Under Perfect Competition
- Relationship Between Total, Average and Marginal Revenue Under Imperfect Competition
- Significance of Revenue Curve
- Numerical Problems of Revenue
Main Market Forms and Equilibrium of a Firm
- Concept of Market
- Market Structure
- Factors Determining Market Forms
- Perfect Competition
- Features of Perfect Competition
- Pure and Perfect Competition
- Monopoly
- Features of Monopoly
- Monopolistic Competition
- Features of Monopolistic Competition
- Oligopoly
- Features of Oligopoly
- Monopsony
- Features of Monopsony
- Duopoly
- Characteristics of Duopoly
- Bilateral Monopoly
- Other Forms of Market
- Factors Determining Market / Extent of Market
- Demand Curves of Firms under Different Market Forms
- Comparison between different forms of market
- Difference Between Imperfect Competition and Monopolistic Competition
- Firm : An Economic Entity
- Profit Maximisation Objective
- The Definition of Profits
- Rules for Profit-Maximisation
- Producer's (Firm's) Equilibrium: Total Revenue and Total Cost Approach
- Producer's (Firm's) Equilibrium: Marginal Revenue and Marginal Cost Approach
- Short-run Equilibrium
- Long-run Equilibrium
- Firm is a Price Taker, Not a Price Maker
- Equilibrium of Industry
- Difference Between Firm and Industry's Equilibrium
- Meaning of a Producer
- Producer's Equilibrium under Perfect Competition
- Determination of Price and Equilibrium Under Monopoly
- Monopoly Equilibrium and Laws of Costs
- Price Discrimination or Discriminating Monopoly
- Price and Output Discrimination Under Discriminating Monopoly
- Measures of Monopoly Power
- Nature of Demand and Cost Curves
- Equilibrium Price and Output under Monopolistic Competition
- Group Equilibrium in Monopolistic Competition
- Product Differentiation
- Selling Costs
- Equilibrium with Selling Costs
- Price and Output Under Oligopoly Indeterminate
- Price and Output Determination under Oligopoly
- Price Rigidity-Sweezy's Kinky Demand Curve Model or Equilibrium under Independent Action
- Reasons for Price Stability
- Cournot's Model
- Collusive Oligopoly
- Mergers
Estimated time: 12 minutes
- Introduction to Cournot Duopoly Model
- Formula: General Oligopoly
- Assumptions
- Diagrammatic Representation
- Real-Life Application
- Key Points: Cournot's Model
CISCE: Class 12
Introduction to Cournot Duopoly Model
- Developed by: Augustin Cournot (French economist), 1838
- Purpose: First formal model to explain duopoly (2-firm market)
- Key Result: Each firm supplies 1/3 of market demand, 1/3 remains unsupplied
CISCE: Class 12
Formula: General Oligopoly
Q + (n + 1)
where Q = market size and n = number of sellers.
CISCE: Class 12
Assumptions
| Assumption | Meaning |
|---|---|
| Two firms | Only firms A and B compete |
| Zero MC | Marginal cost = 0 for both |
| Linear demand | Constant negative slope demand curve |
| Fixed rival reaction | Each assumes competitor won't change output |
| Profit maximization | Both firms aim to maximize profits |
| Homogeneous product | Identical products, same price |
CISCE: Class 12
Diagrammatic Representation
- Firm A Starts Alone: Supplies 1/2 market (OQ) at price OP₂ where MR=MC=0. Profit: shaded rectangle.
- Firm B Enters: Assumes A fixed at 1/2. Takes 1/2 of remaining (1/4 total) at OP₁. Price drops.
- A Reacts: Assumes B fixed at 1/4. Takes 1/2 of remaining 3/4 (=3/8).
- B Reacts: Assumes A at 3/8. Takes 1/2 of remaining 5/8 (=5/16).
- Equilibrium: Process repeats until both supply 1/3 each. 1/3 market unsupplied.
CISCE: Class 12
Real-Life Application
Indian Telecom Market:
- Airtel (A) dominated → Jio (B) entered
- Each assumed rival would keep capacity fixed
- Result: Equal market shares, lower tariffs, some rural areas unserved
CISCE: Class 12
