In a Nash-Cournot equilibrium, does an oligopoly firm produce at less than full capacity, at full capacity, or more than full capacity? Explain.

Answer: Less than Full Capacity

In a Nash-Cournot equilibrium a firms produces less output than a perfectly competitive market would but more than a Monopoly. Antoine Cournot, the person who observed this phenomenon saw that the level of output by firm depends on market power. If if there is no collusion, firms in an oligopoly would artificially limit output to boost price. There is a lot of math behind this but the general premise is that the firm takes the output by other firms as a given. It assumes its own behavior has no impact on how much other firms produce. In such a case then, the firm is dealing with a fixed amount of output plus its own. Thus, depending on its market power, it will adjust its own output accordingly since it has still manipulate prices.