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The Cournot model is a market structure in which firms produce homogeneous goods and compete based on quantity rather than price.

Here, each firm assumes its rival’s output is fixed during decision-making. Each firm has identical production cost structures and chooses its output to maximize profits, where marginal revenue equals its marginal cost.

For instance, consider two firms: Firm A and Firm B.

Firm A selects its output level to maximize profit, assuming that Firm B’s output is fixed. 

Similarly, Firm B determines its optimal output by assuming that Firm A’s output is fixed.

 In the initial stages, each firm aims to capture half of the remaining market share after accounting for the rival’s output. 

Over time, they converge to a stable outcome, and both firms occupy one-third of the total market share. 

At this point, neither firm has an incentive to change its output, reaching what is known as the Nash equilibrium.

 The equilibrium outputs can be represented using reaction curves, which illustrate the optimal responses of each firm given the competitor’s output

The intersection point of the two curves represents the Cournot equilibrium and reflects the firm’s profit-maximizing strategy.