Examine the Objective that Cournot pursued in his Researches

There has been numerous contribution made in the discipline of economics which has impacted the
economy positively. Antoine Augustin, Cournot was no exception.

Antoine Augustin (August 28, 1801) was a French mathematician and economist.

In his principal work ‘Recherches sur les principes Math é matique de la Té orie des Richesses’
(Researches into the Mathematical Principles of the Theory of Wealth, 1838), he introduced an
important class of mathematical models describing competitive behavior in the market place. His legacy
is showing economists how to use mathematics to develop economic theory, though his work was
severely criticized, it is today lauded by many economists and his contributions herald as forerunners for
mathematical gain theory which is used for describing for describing strategic interaction between
business firms, tacticians or diplomats.

Cournot began with some preliminary remarks on the rule of mathematics applied to social sciences. He
believed that economists must utilize tools of mathematics only to establish probable limits and to
express less table stable facts in more absolute terms.

His work is associated with the discipline called econometrics which is the art of science of making
measurement in economic theory and applying them to realistic situations. His objective was to recast
mathematical economics into a stochastic form. He also found that economic relationships can only be
estimated based on sample observation.

In the beginning of his researches he runs through the definition of wealth, absolute versus relative
prices and the law of one price. His first formula which he unveiled for the rule of supply and demand as
a function of price, he wrote it in a general form as D=f(P) where D stands for demand (also quantity)
and P stands for prices.

He assumes that the function is continuous and takes it as an empirical proposition that the demand
function is downward-sloping. He also introduced the idea of elasticity.

His curve, D = f(P) merely summarizes the empirical relationship between price and quantity sold, rather
than the conceptual relationship between price and quantity sought by buyers. Cournot refused to
derive demand from any utility based theories of individual behavior.

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Cournot made researches into these main areas: theory of wealth of wealth, demand curve, monopoly,
duopoly, theory of price, perfect competition, production of which his objectives in carrying out the
researches were spelt out.

In the beginning of his researches he runs through the definition of wealth, absolute versus relative
prices and the law of one price. His aim in establishing the demand curve was to explain the relation
between the various prices and the quantity demanded of a commodity.

He unveiled his first formula for the rule of supply and demand as a function of price. He represented it
in a general form as D = f(P) where D stands for demand and P stand for Prices. He assumes that the
function is continuous and takes it as an empirical proposition that the demand function is downward-
sloping. He also introduced the idea of elasticity.

In his book, he says demand depends evidently on the kind of utility of the good, on the nature of
services it can render, the enjoyments it can procure, on the habits and customs of the people, on the
average wealth and on the scale on which wealth is distributed.

It is important to note that Cournot’s demand function is not a demand schedule in the modern sense.
His curve, D = f(P), merely summarizes the empirical relationship between price and quantity sold,
rather than the conceptual relationship between price and quantity sought by buyers. He refused to
derive demand from any “utility” –based theory of individual behavior. He noted that: Accessory ideas if
utility, scarcely and suitability to the needs and enjoyments of mankind are variable and by nature
indeterminate, and consequently ill-suited for the foundation of a scientific theory.

Monopoly

Cournot’s analysis of monopoly begins with his introduction of the concept of a profit-maximizing
producer.

His aim or objective in his research into monopoly was to explain clearly how a monopolist maximizes
profits.

Cournot’s basic principle of profit maximization as revealed is that profit is maximized in a production
process when marginal revenue is equal to marginal cost. Cournot states that, “whatever may be the
abundance of the source of production, the producer will always stop when the increase in expense
exceeds the increase in receipts.” This is explained as follows:

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Profit=( Total Revenue )−(Total Cost )

¿ π=TR−TC

d (Total Cost )
Given Marginal Cost= ∧¿
d (Quantity)

d (Tota l Revenue)
Marginal Revenue=
d (Quantity)

For profit to be maximized

dπ dTR dTC
= − ∨π=MR−MC
dQ dQ dQ

Hence π is maximized when

MR−MC=0∨MR=MC

This relationship is diagrammatically represented below:

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At Q3, TR = TC and so the firm makes no profit. At Q 2, TR is maximized. At Q1, the difference between TR
and TC is maximized and hence, profit is maximized.

THEORY AND DUOPOLY

His research into this theory sought to examine and establish the behaviors of two competitive firms
producing a homogeneous product. It served the foundation for many models to come, and illustrates
interesting relationship between competitive firms. Each producer knows that his competitor’s decision
as to the quantity of the product to make will also impact the price he/she faces and thus the profit.
Consequently, each producer chooses the quantity that maximizes his or her profit subject to the
quantity reaction of the competition. The models assumption of a homogenous product means firms
must sell their product at the market price, which is a function of the total quantity of the goods they
produce.

Cournot was held for his outstanding contribution into economics. His contribution to the discipline
cannot be overstated. He is primarily responsible for bringing mathematics to the discipline. With an
edge to work and make researches he was able to meet some if not all of the objective he targeted. His
example shows how the simple synthesis of academics is often far more influential.