1. Why is the Cournot equilibrium stable? (i.e., Why don"t firms have any incentive to change their output levels once in equilibrium?) Even if they can"t collude, why don"t firms set their outputs at the joint profit maximizing levels (i.e., the levels they would have chosen had they colluded)?
2. In the Stackelberg model, the firm that sets output first has an advantage. Explain why. 6. What do the Cournot and Bertrand models have in common? What is different about the two models?
3. Explain the meaning of a Nash equilibrium when firms are competing with respect to price. Why is the equilibrium stable? Why don"t the firms raise prices to the level that maximizes joint profits?