Question

Define & explain the following in economic terms:

1)Cournot vs. Bertrand approaches to duopoly

2)Dorfman-Steiner equation (for determining optimal amount of advertising for a firm)

Answer 1

1) Since the Bertrand model expects that organizations contend on cost and not yield amount, it predicts that a duopoly is sufficient to push costs down to minimal cost level, implying that a duopoly will bring about flawless rivalry.

Neither one of the models is essentially "better." The precision of the expectations of each model will change from industry to industry, contingent upon the closeness of each model to the business circumstance.

In case of easy change in output and capacity with respect to duopoly competition Bertrand is a better option. In case of difficulty to adjust in output and capacity with respect to duopoly competition Cournot is a better option.

Under certain conditions the Cournot model can be reevaluated as a two-stage model, where in the main stage firms pick limits, and in the subsequent they contend in Bertrand style.

But, as the quantity of firms increments towards boundlessness, the Cournot model gives a similar outcome as in Bertrand model: The market cost is pushed to Marginal cost level.

2) The Dorfman–Steiner equation is a neoclassical financial aspects equation which searches for the advertising's optimal level that a firm ought to embrace. The Equation is named after Robert Dorfman and Peter O. Steiner who built up the methodology in their generally refered to 1954 article in the American Economic Review. Firms can expand their deals by either diminishing the cost of the great or convincing shoppers to purchase more by expanding publicizing use. The ideal degree of publicizing for a firm is discovered where the proportion of advertising to sales rises to the value cost edge times the demand elasticity of advertising. The undeniable outcome is that the more prominent the level of affectability of amount requested to advertising and the more noteworthy the edge on the additional yield then the higher the degree of advertising.