Suppose Canon raised the price of its printers, but Hewlett-Packard (the largest seller) refused to follow. Two years later, Canon cut itsprice, and Hewlett-Packard retaliated with an even deeper price cut, which Canon was forced to match. For the next five years, Hewlett-Packard raised its prices five times, and each time, Canon followed suit within 24 hours.The model underlying the pricing behavior of these firms is the:Cartel modelO Perfect competition modelNonprice competition modelPrice leadership model

The correct option is: Price leadership model Explanation: The scenario outlined implies a pricing…

Answered: Suppose Canon raised the price of its…

Survey Of Economics

10th Edition

ISBN:9781337111522

Author:Tucker, Irvin B.

Publisher:Tucker, Irvin B.

Chapter9: Monopolistic Competition And Oligoply

Section: Chapter Questions

Problem 11SQP

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The table shows a hypothetical demand schedule for monosodium glutamate (MSG). Ajinomoto holds 50% of the market, Jiali holds 30% of the market, and Quingdao holds 20% of the market. Suppose the three firms agree to form a cartel to fix production of monosodium glutamate. Assume marginal cost equals zero, and the output is split equally across the firms. What quantity maximizes the cartel's profit? Price of MSG ($ per pound) Quantity of MSG demanded (millions of pounds) $8 0 $7 20 $6 30 $5 40 $4 60 $3 90 $2 110 $1 180 $0 300 __________million pounds
The table shows a hypothetical demand schedule for monosodium glutamate (MSG). Ajinomoto holds 5050% of the market, Jiali holds 3030% of the market, and Quingdao holds 2020% of the market. Suppose the three firms agree to form a cartel to fix production of monosodium glutamate. Assume marginal cost equals zero, and the output is split equally across the firms. What quantity maximizes the cartel's profit? Price of MSG ($ per pound) Quantity of MSG demanded (millions of pounds) $8$8 00 $7$7 2020 $6$6 3030 $5$5 4040 $4$4 6060 $3$3 9090 $2$2 110110 $1$1 180180 $0$0 300300 million pounds million pounds Suppose Ajinomoto's marginal cost remains equal to zero, but for Jiali and Quingdao, marginal costs rise above zero. How would this affect the incentive of Ajinomoto to act noncooperatively and change its output? Ajinomoto will not have an incentive to change its output. Ajinomoto will have an incentive to increase its output of MSG.…
Monopoly: Around the World There are 38 nearly identical ABC stores within a one-mile radius in Waikiki. The combined size of these 38 stores allows ABC to offer large quantities at favorable prices. Antitrust laws are designed to maintain competition and prevent monopolies from developing. a. One reason antitrust laws exist is that monopolies tend to produce output and charge prices than firms in perfectly competitive industries. less higher more lower b. АВС operates as a natural monopoly and is therefore subject to regulation. operates in a contestable market and is therefore unlikely to charge high prices. is subject to price caps, regulating the prices it can charge. has no competition, or threat of competition, which limits its market power. O O O O
How would cartel decide optimal pricing and output
Consider a hypothetical demand schedule for monosodium glutamate (MSG). Suppose that Ajinomoto holds 50% of the market, Jiali holds 30% of the market, and Quingdao holds 20% of the market. Suppose the three firms agree to form a cartel to fix production of monosodium glutamate. Assume marginal cost equals zero, and the output is split equally across the firms. Price of MSG ($ per pound) Quantity of MSG demanded (millions of pounds) $8 0 $7 20 $6 30 $5 40 $4 60 $3 90 $2 110 $1 180 $0 300 What quantity maximizes the cartel's profit? a.110 million pounds b.90 million pounds c.300 million pounds d.20 million pounds Suppose Ajinomoto's marginal cost remains equal to zero, but for Jiali and Quingdao, marginal costs rise above zero. How would this affect the incentive of Ajinimoto to act noncooperatively and change its output? a.Ajinomoto will have an incentive to increase its output of MSG. b.Ajinomoto will not have an incentive to change its…
Breakdown of a cartel agreement Consider a town in which only two residents, Darnell and Eleanor, own wells that produce water safe for drinking. Darnell and Eleanor can pump and sell as much water as they want at no cost. For them, total revenue equals profit. The following table shows the town's demand schedule for water. (base to table 1) Suppose Darnell and Eleanor form a cartel and behave as a monopolist. The profit-maximizing price is $_____ per gallon, and the total output is _____ gallons. As part of their cartel agreement, Darnell and Eleanor agree to split production equally. Therefore, Darnell's profit is $_______, and Eleanor's profit is $______. Suppose that Darnell and Eleanor have been successfully operating as a cartel. They each charge the monopoly price and sell half of the monopoly quantity. Then one night before going to sleep, Darnell says to himself, "Eleanor and I aren't the best of friends anyway. If I increase my production to 45 gallons more than…
Imagine there are two companies, East Wafer and West Wafer, which produce silicon wafers, the base component in the microchips which constitute the brains of our computers. Below is the daily demand for silicon wafers Suppose, for simplicity, East Wafer and West Wafer have the same constant cost structure, so maximizing total revenue maximizes profit. If East Wafer and West Wafer are able to form a cartel and collude without cheating on each other, what will be the price of a silicon wafer? $40 $50 $60 $70
Gotcha, the only seller of stun guns, faces the inverse market demand curve, P = 400 - 120, where Q measures the number of stun guns sold per day, and P is the price per stun gun. The marginal cost is constant at $64. Suppose a new firm, Ouchy, enters the stun gun market. Ouchy's marginal cost is also constant at $64. Gotcha and Ouchy agree to form a cartel and evenly split the market output. Gotcha holds to the agreement, but Ouchy decides to produce 5 more stun guns than its level under the cartel agreement. In this case, the market price is $. 172 192 232 205
Consider the curve shown in the figure below, which shows the market demand, marginal cost, and marginal revenue curve for firms in an oligopolistic industry. (MC curve is horizontal because it is assumed that the fixed costs are 0 for all firms and the AVC is constant, so ATC=AVC=MC.) Suppose the firms collude to form a cartel. What price will the cartel charge? What quantity will the cartel supply? How much profit will the cartel earn? Suppose now that the cartel breaks up and the oligopolistic firms compete as vigorously as possible by cutting the price and increasing sales. What will the industry quantity and price be? What will the collective profits be of all firms in the industry? Compare the equilibrium price, quantity, and profit for the cartel and cutthroat competition outcomes.
Consider an oligopoly in which firms choose quantities. The inverse market demand curve is given by P = a - b (9₁ +92), where 9₁ is the quantity produced by Firm 1, and 92 is the quantity produced by Firm 2. Each firm has a marginal cost equal to c. 1. What is the equilibrium market quantity if the two firms acted as a cartel (i.e., attempt to set prices and outputs together to maximize total industry profits). How about the equilibrium market price? 2. Instead of cartel, suppose now firm 1 acts as the leader and firm 2 acts as the follower. What is the Stackelberg equilibrium quantities determined by each firm? What is the equilibrium market price? π2 3. Find using the Stackelberg quantities and price. Whose profit is higher?
Two farmers produce milk for local town with local milk demand given by Q=100-1/3P (P denotes price measured in Rands, Q denotes the quantity measured in litres). Both farmers have the same cost function given by TC=150+2q (where q denotes output) a. Calculate the profit if farmer 2 decides to break the cartel agreement
Consider a market with two firms managed by Harry and Vera. Under a cartel (both firms pick the high price), each firm earns a profit of $85. Under a duopoly (both firms pick the low price), each firm earns a profit of $70. If the two firms pick different prices, the high-price firm earns a profit of $25 and the low-price firm earns a profit of $100. This is depicted in the payoff matrix to the right. The outcome of the pricing game is Vera High Price Low Price O A. Harry and Vera both pick the high price. O B. Harry picks the low price and Vera picks the high price. OC. Harry picks the high price and Vera picks the low price. O D. Harry and Vera both pick the low price. Наrry $85 $100 High Price $85 $25 $25 $70 The outcome identified above is a Nash equilibrium because neither firm has an incentive to Low Price $100 $70 O A. pick the high price given that the other player is picking the low price. O B. pick the high price given that the other player is picking the high price. O C.…

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