ECON MICRO (with MindTap, 1 term (6 months) Printed Access Card) (New, Engaging Titles from 4LTR Press)
6th Edition
ISBN: 9781337408059
Author: William A. McEachern
Publisher: Cengage Learning
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Chapter 10, Problem 6P
To determine
The reasons for
Concept Introduction:
When prices are determined by a dominant company and this price is followed by others in the same market, this is called Price Leadership.
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Define Oligopoly market structure . Discuss the barriers to entry and exit in an oligopoly market .(mic
COURSE: MICROECONOMICS LEVEL 2
COURSE: MICROECONOMICS LEVEL 2
Consider a company A operating in an oligopoly which has a market share of 20% and a unit cost of $50. It currently sells at a price (P) of $52.9 with a price elasticity of demand of -3.5. This company will merge with company D, so that market share will reach 50%. Estimate impact of this operation on selling price under 2 scenarios:(a) With economies of scale, given the merger. Cost reduction of 15%.b) Without economies of scale, constant cost of 50%.c) How much does market power of merged company change, considering with and without economies of scale?
(REAL-WORLD APPLICATION) You are NOT required to read the oligopoly chapter in the textbook, but
you already know quite a lot about it from our discussion of strategic interactions using game theory
in weeks 2-3. This market structure is between monopoly and monopolistic competition, with only a
handful of firms having a high degree of market power. Let's refresh your memory with the following
example. Assume that the Australian low-cost airline industry consists of two firms and their situation can
be represented by the following payoff matrix.
Tigar Air
Nothing
Low Price
More Advertising
0, 16
6, 6
Nothing
10, 10
2, 14
Jetstar
Low Price
16, 0
12, 4
More Advertising
14, 2
4, 12
8, 8
a. Before solving the game, put yourself in the position of Jetstar and write down your action. Then
independent of that, put yourself in the position of Tiger Air and write down your action.
b. State all the dominated strategies in the full game, by which strategy they are dominated, and
whether weakly or…
Chapter 10 Solutions
ECON MICRO (with MindTap, 1 term (6 months) Printed Access Card) (New, Engaging Titles from 4LTR Press)
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Similar questions
- 25: What are the Characteristics of a Oligopoly Market? 26: What are the Characteristics of a Monopoly Market? 27: What are Intellectual Property Rights?arrow_forward32arrow_forward(Bertrand’s duopoly game with discrete prices) Consider the variant of the example of Bertrand’s duopoly game in this section in which each firm is restricted to choose a price that is an integral number of cents. Assume that c is an integral number of cents and that α > c + 1. Is (c, c) a Nash equilibrium of this game? Is there any other Nash equilibrium?arrow_forward
- 1. Characteristics of oligopoly The oligopoly market structure is characterized by several defining qualities, one of which is either similar or identical products. Of the following list of characteristics, which others describe the oligopolistic market structure? Check all that apply. Market control by many small firms Neither mutual interdependence nor mutual dependence Mutual interdependence Difficult entry Market control by a few large firmsarrow_forward56.Assume that an oligopoly's four enterprises are forming a pact to cooperate. How might the ease of entry into their industry influence how much they charge?arrow_forwardQuestion1 Next time you are shopping at the supermarket (or imagine you are there), what is a good example of a good (not a brand name) that is sold in an oligopoly market? What is the good? What are the major manufacturers (be sure to turn the package over so you are now confusing brand names with the manufacturer)? Which characteristics of an oligopoly market are shown here (few dominant producers; identical prices; high barriers to entry)?arrow_forward
- 18. Horizontal Integration is most likely to lead to an industry that is: monopolistically competitive an oligopoly any of the other answers O perfectly competitivearrow_forwardJ Copyright © McGraw-Hill Education. Permission is granted to reproduce for classroom use. NAME DATE CLASS Math Practice for Economics Comparing Prices among Competitors networks Background information: The candy industry in the United States could be defined as an oligopoly because just three companies make 99.4% of snack size chocolates. The big three companies are Hershey's, Mars, and Nestle. All three companies use much of the same ingredients, so how do they compete against one another? This is primarily done through price. Directions: The two tables below show what a snack size chocolate costs from the various candy makers, big and small. Read the table below. Then, answer the following questions using the information in the table. 110 ct bag $18.12 = 16 cents each Walmart Amazon Hershey's 215 ct. bag $13.88 = 6 cents each 100 ct. bag $12.81 = 13 cents each Mars 230 ct. bag $13.88 = 6 cents each Nestle 70 ct. bag $8.98 = 13 cents each 55 pc. Bag $17.96 = 33 cents each Candy…arrow_forwardQuestion #3 (Oligopoly Question) Kashian Airline has determined that the price elasticity of demand for two customer segments (a Customer seeking First Class seats on an airplane has price elasticity of demand is -1.5 while Coach seats have a price elasticity of demand is -2.25. Based on their expectations of profitability, Kashian realizes the Marginal Cost of the flight $350. Note that the marginal cost of a Coach Seat and a First Class seat are about the same (in effect, MC = $350 for each). How much should Kashian charge for its each of its products (coach and first class)? (20 Points)arrow_forward
- 21 Which of the following is a common characteristic of oligopolies? A Formal agreement to produce the same output at the same price BO Market quantity demanded only large enough to support one firm Mutual interdependence regarding price, output, and advertising DO Shared barriers to entry that limit the entry of other organizationsarrow_forward5. The Key feature of Oligopoly is interdependence – we saw this in both traditional models and using game theory. a. Explain why price can be very rigid for an oligopoly using the “Kinked Demand Model”: b. Explain how an oligopoly can simultaneously take one features seen for a monopoly and for perfect competition using the “Price Leader Model”: c. Describe how the Hirchmann Herfindahl Index (HHI) provides a more acquire measurement of market concentration than a simple Concentration Ratio like CR4: d. What is the actual dilemma in a “Prisoners’ Dilemma” type of game? e. What is the main reason why real-world Cartels have such a hard time function well?arrow_forward1arrow_forward
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