Microeconomics
21st Edition
ISBN: 9781259915727
Author: Campbell R. McConnell, Stanley L. Brue, Sean Masaki Flynn Dr.
Publisher: McGraw-Hill Education
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Chapter 14, Problem 3RQ
To determine
Impact of collusion in oligopoly.
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The inverse demand for a homogenous-product Stackelberg duopoly is P = 10-Q where Q=Q1 + Q2.
The cost structure for the two firms, respectively, are C(Q1) = 4Q1 and C2(Q2) = 2Q2.
Suppose Firm 2 is the leader.
What is the equilibrium profit for the leader?
O 7.5
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11 21. Imagine an N firm oligopoly for "nominally differentiated" goods. That is, each of the N firms produces a product that "looks" different from the products of its competitors, but that "really" isn't any different. However, each firm is able to fool some of the buying public. Specifically, each of the N firms (which are identical and have zero marginal cost of production) has a captive market -consumers who will buy only from that firm. The demand generated by each of these captive markets is given by the demand function Pn A- Xn , where Xn is the amount supplied to this captive market and Pn is the price of the production of firm n. There is also a group of intelligent consumers who realize that the products are really undifferentiated. These…
Ma3.
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.
Chapter 14 Solutions
Microeconomics
Ch. 14.2 - Prob. 1QQCh. 14.2 - The D2e segment of the demand curve D2eD1 in graph...Ch. 14.2 - Prob. 3QQCh. 14.2 - Prob. 4QQCh. 14 - Prob. 1DQCh. 14 - Prob. 2DQCh. 14 - Prob. 3DQCh. 14 - Prob. 4DQCh. 14 - Prob. 5DQCh. 14 - Prob. 6DQ
Ch. 14 - Prob. 7DQCh. 14 - Prob. 8DQCh. 14 - Prob. 9DQCh. 14 - Prob. 10DQCh. 14 - Prob. 11DQCh. 14 - Prob. 12DQCh. 14 - Prob. 13DQCh. 14 - Prob. 14DQCh. 14 - Prob. 1RQCh. 14 - Prob. 2RQCh. 14 - Prob. 3RQCh. 14 - Prob. 4RQCh. 14 - Prob. 5RQCh. 14 - Prob. 6RQCh. 14 - Prob. 7RQCh. 14 - Prob. 8RQCh. 14 - Prob. 9RQCh. 14 - Prob. 10RQCh. 14 - Prob. 1PCh. 14 - Prob. 2PCh. 14 - Prob. 3P
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- 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 G 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…arrow_forwardConsider 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_forwardConsider two firms that produce identical products in a situation of duopoly. The two firms have the same marginal cost. Which of the following statements is true: O Under Cournot competition, the equilibrium price is lower than the equilibrium price under Bertrand competition O Under Cournot competition, the equilibrium price will be at the same level as the equilibrium price under perfect competition Under Cournot competition, the equilibrium price will be at the same level as the price under a monopoly O Under Bertrand competition, the equilibrium price will be at the same level as the equilibrium price under perfect competition O The two firms will end up producing different levels of outputarrow_forward
- When comparing two firms operating as a cartel/colluding and two firms competing in Cournot competition, given the firms face the same inverse market demand and marginal cost is the same for both firms in either situation, which of the following is true? а. The total profit is the same in Cournot competition and collusion. O b. Total output is higher in collusion than in Cournot competition and the price is lower in collusion than in Cournot Competition. Ос. The total profit is lower in Cournot competition than in collusion. O d. Total output is lower in collusion than in Cournot competition and the price is higher in collusion than in Cournot Competition.arrow_forwardWhat 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. MacBook Pro く※ G Search or type URL 6 7 8. 3 4. W Earrow_forward1. Which market structure(s) will have zero economic profits in the long run? 2. Which market structure(s) will be a price maker and have barriers to entry? 3. There are currently 8 firms in a particular market. There firm sales are given in the table below. (1) What is the four-firm concentration ratio for this industry? (2) Would you classify it as an oligopoly? Firm 1 2 3 4 5 6 7 8 Sales $1,000 $1,500 $2,000 $2,500 $3,000 $1,000 $500 $2,500 4. Although market structures vary widely in their characteristics, (1) what is one common aspect among all of them? (2) What is the potential calculation for your previous answer (Answers in 4.1)? 5. In the long run, (1) which market structures are likely to have their average cost curve just sit on top of their demand curve? (2) What does this imply for each market structure? (3) Are there any differences in the market structures you gave in your previous answer? 6. What market structure(s) are likely to cause a net loss to societal welfare?arrow_forward
- Consider a duopoly market with 2 firms. Aggregate demand in this market is given byt Q = 500 – P, where P is the price on the market. Q is total market output, i.e., Q = QA + QB, where QA is the output by Firm A and QB is the output by Firm B. For both firms, marginal cost is given by MC = 20, i=A,B. « Assume the firms compete a la Cournot. e a) Find the inverse demand in this market. Note that marginal revenue for both firms is given by MRA=500-2QA-QB, MRB=500-QA-2QB. b) Describe what a best-response curve is and how to find it. c) Derive the best-response function for each firm. d) What are the equilibrium quantities? e) What is the total quantity supplied on this market? f) What is the equilibrium price in this market?arrow_forwardQUESTION 4 If Bertrand duopolists respectively have marginal costs of 10 (firm 1) and 8 (firm 2), which of the prices below can arise in Nash equilibrium? (Assume that prices must be quoted in full cents, e.g. $0.99 or $1, but $0.995 is not possible. If prices are equal, half of the customers buy from each firm.) O Both firms charge $8.01. Firm 1 charges $10 and firm 2 charges $8. Both firms charge $9. Firm 1 charges $10 and firm 2 charges $9.99.arrow_forwardOnce more, please consider a market with eight producers that produce a total of 30,000 units. Their output is broken down below: Firm's Firm Output One 7400 Two 1800 Three 4100 Four 5200 Five 1400 Six 2800 Seven 6600 Eight 700 According to our lecture, this industry likely to be an oligopoly because is not; a small number of firms produce a large amount of the output O is; a small number of firms produce a large amount of the output O is not; production is spread out among relatively many firms is; production is spread out among relatively many firmsarrow_forward
- 3. 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_forwardWhich 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.arrow_forwardThe graph below shows a duopolistic market. The firms in this market produce and sell identical products. The graph below shows the market demand, a corresponding marginal revenue curve for the product, and an identical marginal cost curve for each firm. Assume both firms have the goal of maximising economic profit. If the two firms were to collude, what would be the total economic profit made by each firm? O O O $24 $6 $16 $8 Price ($) 10 9 8 7 $0 6 5 4 3 2 1 0 0 Insufficient information to determine economic profit of each firm. 1 2 3 4 MR 5 6 7 8 9 MC D 10 Quantityarrow_forward
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