What assumption does the Cournot model of duopoly make about the firms? A) They compete on price B) They compete on quantity C) They do not compete D) They collude
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- Compare the industry output and price in a Cournot versus a competitive equilibrium. Do firms earn economic profits in the Cournot model? Does economic theory predict that firms always earn economic profits in oligopolistic industries? Explain. What does the empirical evidence indicate?Why might price collusion occur in oligopolistic industries? Access the economic desirability of collusive pricing. What are the main obstacles to collusion? Explain with the help of valid and realistic examples.Two models of oligopolistic competition:Cournot Model (firms compete in quantities)Price Competition Model (firms compete in prices)However, other industries exist where a firm might decide to compete by setting quantities while another firm sets prices. Identify one such industry in our society. Provide clear examples and explain the reasons that might motivate firms' decisions?
- Which of the following best represents the pricing behavior of firms in an oligopolistic market? A) Stay*Put Clothespins takes the market price of clothespins as given and produces the amount of clothespins where marginal revenue equals marginal cost. B) Unykdrugs, Inc. produces where its marginal revenue is equal to its marginal cost and prices on its downward-sloping demand curve such that the market for its product clears, knowing it will not face competition due to patents it holds on its products. C) Teen Angle Hardware looks for a niche to sell its hardware products to teens but finds it difficult to earn anything more than normal profit due to other hardware stores also looking for niches. D) Looking Over Your Shoulder Handbag Co. chooses the price it charges by estimating what its rivals are most likely to do and then taking their responses into consideration.Product differentiation is an essential characteristic of oligopolistic market structures.do you agree ?explainDuopoly and menu costs. (This is adapted from CaminaI 1987.) Consider two firms producing imperfect substitutes. Both firms can produce at zero marginal cost. The demand for the good produced by firm i is given by Now suppose that both firms enter the period with price p., which is the Nash equilibrium price for some value of a, a·. They know b and c. They each observe the value of a for the period, and each firm must independently quote a price for the period. If it wants to quote a price different from p*, it must pay a cost k. Otherwise, it pays nothing. Once prices are quoted, demand is allocated, demand determines produdion, and profits are realized. (b) Compute the set of values of a (around a*) for which not to adjust prices is a Nash equilibrium. (c) Compute the set of values of a (around a*) for which to adjust prices is a Nash equilibrium. (d) Check that all equilibria are symmetric and therefore that there are no other equilibria than the ones computed above.…
- In a Nash - Cournot equilibrium, does an oligopolistic firm produce at less than full capacity, full capacity, or more than full capacity? Explain.Assume that two firms, Wilson and Spalding, can manufacture basketballs for the entire Norfolk market, and that the market is oligopolistic in structure. Market Demand: Q-120-P Total Costs: TC-200 Q the quantity of basketballs P the price of a basketball in $ US TC the total cost of producing a given quantity of basketballs (in $ US) Show all of your work in solving the problems below. 1) The Cournot Model: Now assume that the two firms are Cournot competitors, and that all the assumptions of the Cournot model are met: no firm entry, homogeneous goods, a single period, and that the firms choose the quantities of basketballs to supply. Now, how many basketballs will be sold by each firm and at what price? What will be the total revenues, total costs, and the profits for each of the two firms? Demonstrate the model using graphs. (See Figs. 9-3 to 9-10) 2) The Stackelberg Model: Assume that the two firms are Stackelberg competitors, and that Wilson is the Stackelberg leader and Spalding…Two firms are competing in a Bertrand setting. The demand and costs equations are: Q1 = 88–4P1+2P2, Q2 = 88–4P2+2P1; MC1 = 9; and MC2 = 10. The firms agreed to collude. But firm 1 sets a P-Duopoly. Instructions: Use no decimals. a. Under these conditions, P1 = $ P2 = $ b. Calculate each firm's equilibrium output. Q1 = Q2 = c. Calculate the profit each firm earns in equilibrium. Firm 1: $ Firm 2: $ d. In this case, A. Firm 1 was exposed to deception, and should have entered the market with P-Monopoly. B. Firm 2 was exposed to deception, and should have entered the market with P-Monopoly. C. Firm 2 was exposed to deception, and should have entered the market with P-Duopoly. D. Firm 1 was dishonest, and soon will be ostracized by the industry.
- The following integrated series of questions relates to several sections in the text. Scenario 2: Suppose a stream is discovered whose water has remarkable healing powers. You decide to bottle the liquid and sell it. The market demand curve is linear and is given as follows: P = 30 -Q The marginal cost to produce this new drink is $3. Refer to Scenario 2. What will be the price of this new drink in the long run if the industry is a Cournot duopoly? A. $3 В. $9 C. $13.50 D. $12 E. None of the aboveAn oligopolistic market structure is distinguished by several characteristics, one of which is either similar or identical products. Which of the following are other characteristics of this market structure? Check all that apply. ONeither mutual interdependence nor mutual dependence Market control by a few large firms Market control by many small firms Mutual interdependence Difficult entryWhy might price collusion occur in oligopolistic industries? Assess the economic desirability of collusive pricing. What are the main obstacles to collusion? Speculate as to why price leadership is legal in the United States, whereas price-fixing is not.
