Microeconomics
21st Edition
ISBN: 9781259915727
Author: Campbell R. McConnell, Stanley L. Brue, Sean Masaki Flynn Dr.
Publisher: McGraw-Hill Education
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Question
Chapter 13, Problem 2DQ
To determine
The difference between the elasticity of monopolistic competitor and pure competitor.
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Which of the following most accurately explains a general distinction between oligopolists that advertise and those that do not?
O Unlike nonadvertising oligopolists, advertising ones allocate resources inefficiently, charge a higher price, and restrict output so that price
exceeds average cost.
O Advertising oligopolists decrease the price to increase sales, whereas nonadvertising ones increase prices to increase profits.
O Advertising oligopolists compete using product differentiation instead of price reductions, whereas nonadvertising firms collude to form a
cartel to maximize joint profits.
O Advertising oligopolists set prices and output quotas to maximize joint profits, whereas nonadvertising ones use product differentiation.
Rawlding is a manufacturer in the oligopolistically competitive market for footballs. Two other manufacturers, Spaldon and Wilke, compete with
Rawlding for football consumers. Rawlding faces the demand curve for footballs depicted on the graph. Initially, Rawlding charges $30 per football,
producing and selling 7 million footballs per year.
PRICE (Dollars per ball)
36
35
34
33
32
31
30
29
28
27
26
O
7
8
FOOTBALLS (Millions of balls)
9
10
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As an oligopolist, Rawlding is a price maker. If Rawlding raises the price of its football from $30 to $32 per ball, the quantity of Rawlding footballs
demanded
by million footballs per year. If Rawlding reduces the price of its football from $30 to $28 per ball, the quantity of
by million footballs per year. (Hint: Click on the points on the graph to see their coordinates.)
footballs demanded
If Rawlding raises the price of its football above $30, the kinked demand curve model suggests that Spaldon and Wilke will respond by
The portion of Rawlding's…
What is a feature common to both Monopolistic-Competition and Oligopoly type of markets?
O productive efficiency will occur in both the short run and long run, a desirable economic property of markets.
many smaller sized firms can produce the good or service at lower cost per unit than larger sized firms, thus
large firms fail in the long run.
the demand curve for each firm is not going to be purely elastic, because products are at least slightly
different than potential rival firms' product and/or there may be some consumer brand loyalty.
Firms in both types of markets eventually will be broken up by government anti-trust laws and regulations.
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- Consider an oligopolistic market with 5 identical firms that choose their profit-maximizing quantities simultaneously. Suppose each firm has constant marginal costs of $123 per unit and the market elasticity of demand is - 1.08. What is the change in the prevailing market price if one additional firm joins the market? Assume that the potential entrant is identical to the incumbent firms. O A. -7.71 O B. - 5.51 O C. -9.92 O D. - 6.89arrow_forwardMa3. You operate in a duopoly in which you and a rival must simultaneously decide what price to charge for the same homogeneous product. Assume each you and your rival can choose a “low price” or a “high price”. If you each charge a low price, you each earn zero profits. If you each charge a high price, you each earn profits of $3 million. If you charge different prices, the one charging the high price loses $5 million and the one charging the low price makes $5 million. What is the Nash equilibrium for the non-repeated version of this game? Now suppose the game is infinitely repeated. If the interest rate is 10%, can you do better than you could in the non-repeated version of this game? If your answer is “yes”, provide the players’ strategies and any other conditions that must hold.arrow_forward3. The following graph summarizes the demand and costs for a firm that operates in a monopolistically competitive market. (LOI, LO3, LOS) $220 210 200 190 180 170 160 150 140 130 120 110 100 90 80 70 60 50 40 30 20 10 0 MR 8 9 10 11 12 13 14 15 16 a. What is the firm's optimal output? b. What is the firm's optimal price? c. What are the firm's maximum profits? d. What adjustments should the manager be anticipating? ATC 22 23 24 25 Quantityarrow_forward
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