Doubt

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Doubt

Halflife

Question 9) answer : (b)
But isn't this Cournot production a nash equilibrium? And isn't a nash equilibrium pareto efficient?
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Re: Doubt

Halflife
Okay google says that often it isn't pareto optimal. But how do we find in this case if it's pareto optimal or not?
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Re: Doubt

happy
In reply to this post by Halflife
Nash Equilibrium is neither necessary nor sufficient for Pareto efficient outcome.
For example, Consider prisoner dilemma.

In this question if both firm merges total profit of the industry increase, hence each firm profit increase.
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Re: Doubt

Halflife
Oh yes collusive solution. Totally forgot that. Thank you.
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Re: Doubt

Asd1995
In reply to this post by Halflife
A qualitative assesment can be given in the sense that both firm's competitiveness leads to this equilibrium. If both firms agree to charge a higher price their profits will increase, but either firm can cut prices a little and capture more market. Hence this isn't a pareto optimal situation in the sense that both firms can be better off, but their competitiveness does not allow them to do so.
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