Why oligopolies exist.

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Answer 1

Question

Chapter 14, Problem 1DQ

To determine

Why oligopolies exist.

Expert Solution & Answer

Explanation of Solution

An oligopoly is a limited competition market. It may exist because of various reasons. The economies of scale are an important reason for an oligopoly. The economies of scale help the firms to produce at the lowest possible average cost. When the firms are producing at the minimum average cost, it will increase the profit of the firms. Only large firms will have good economies of scale and thus, they can easily capture the market. The small firms and new entrants would require investing more capital in order to get the economies of scale. Thus, the small firms cannot produce at the minimum average cost and as a result, they will be eventually driven out of the market leading to the establishment of the oligopoly.

Branding and advertisements have a high impact on the consumers. They will create a strong preference in the consumers over other products and provide a monopolistic power to the seller. Such huge advertising and branding are not possible for the small firms and as a result, they will have to eventually move out of the market because of the loss of the demand and the revenue which will create the oligopoly.

Many large sellers and producers will merge together in order to further strengthen the economies of scale, which will in turn increase their profits by reducing the cost of production. It will force small firms out of the market, creating an oligopoly.

Important examples for oligopoly products that are common in day-to-day life are automobile manufacturers; the companies that produce automobiles are very few in number. Similarly, gasoline producers are very few in number. Even though there are many companies, the manufacturers of computer chips are very few in number. The manufacturers of mobiles, as well as computer operating systems, are very few in number. These are the examples of oligopoly seen day-to-day.

An oligopoly differs from a monopolistic competition in many ways. The main difference is seen in the number of players. There are a large number of players in the monopolistic competition, whereas there are only few in an oligopoly.

The market power is very small in monopolistic competition, but the market share is very high in the oligopoly market. Similarly, the products in the monopolistic competition are differentiated, whereas they are not completely in the oligopoly. The oligopoly market sometimes sells similar products, too.

By and large, there is easy entry and exit to the market in monopolistic competition. But the entry and exit into an oligopoly has strict barriers.

Economics Concept Introduction

Concept introduction:

Oligopoly: It is an imperfect market condition. There will be a few players in the market. The market will be shared between the few sellers, thus. This is why the market condition is known to be in a state of limited competition.

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2. What is the payoff from a long futures position where you are obligated to buy at the contract price? What is the payoff from a short futures position where you are obligated to sell at the contract price?? Draw the payoff diagram for each position. Payoff from Futures Contract F=$50.85 S1 Long $100 $95 $90 $85 $80 $75 $70 $65 $60 $55 $50.85 $50 $45 $40 $35 $30 $25 Short

3. Consider a call on the same underlier (Cisco). The strike is $50.85, which is the forward price. The owner of the call has the choice or option to buy at the strike. They get to see the market price S1 before they decide. We assume they are rational. What is the payoff from owning (also known as being long) the call? What is the payoff from selling (also known as being short) the call? Payoff from Call with Strike of k=$50.85 S1 Long $100 $95 $90 $85 $80 $75 $70 $65 $60 $55 $50.85 $50 $45 $40 $35 $30 $25 Short

4. Consider a put on the same underlier (Cisco). The strike is $50.85, which is the forward price. The owner of the call has the choice or option to buy at the strike. They get to see the market price S1 before they decide. We assume they are rational. What is the payoff from owning (also known as being long) the put? What is the payoff from selling (also known as being short) the put? Payoff from Put with Strike of k=$50.85 S1 Long $100 $95 $90 $85 $80 $75 $70 $65 $60 $55 $50.85 $50 $45 $40 $35 $30 $25 Short

Answer 2

Question

Chapter 14, Problem 1DQ

To determine

Why oligopolies exist.

Expert Solution & Answer

Explanation of Solution

An oligopoly is a limited competition market. It may exist because of various reasons. The economies of scale are an important reason for an oligopoly. The economies of scale help the firms to produce at the lowest possible average cost. When the firms are producing at the minimum average cost, it will increase the profit of the firms. Only large firms will have good economies of scale and thus, they can easily capture the market. The small firms and new entrants would require investing more capital in order to get the economies of scale. Thus, the small firms cannot produce at the minimum average cost and as a result, they will be eventually driven out of the market leading to the establishment of the oligopoly.

Branding and advertisements have a high impact on the consumers. They will create a strong preference in the consumers over other products and provide a monopolistic power to the seller. Such huge advertising and branding are not possible for the small firms and as a result, they will have to eventually move out of the market because of the loss of the demand and the revenue which will create the oligopoly.

Many large sellers and producers will merge together in order to further strengthen the economies of scale, which will in turn increase their profits by reducing the cost of production. It will force small firms out of the market, creating an oligopoly.

Important examples for oligopoly products that are common in day-to-day life are automobile manufacturers; the companies that produce automobiles are very few in number. Similarly, gasoline producers are very few in number. Even though there are many companies, the manufacturers of computer chips are very few in number. The manufacturers of mobiles, as well as computer operating systems, are very few in number. These are the examples of oligopoly seen day-to-day.

An oligopoly differs from a monopolistic competition in many ways. The main difference is seen in the number of players. There are a large number of players in the monopolistic competition, whereas there are only few in an oligopoly.

The market power is very small in monopolistic competition, but the market share is very high in the oligopoly market. Similarly, the products in the monopolistic competition are differentiated, whereas they are not completely in the oligopoly. The oligopoly market sometimes sells similar products, too.

By and large, there is easy entry and exit to the market in monopolistic competition. But the entry and exit into an oligopoly has strict barriers.

Economics Concept Introduction

Concept introduction:

Oligopoly: It is an imperfect market condition. There will be a few players in the market. The market will be shared between the few sellers, thus. This is why the market condition is known to be in a state of limited competition.

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Answer 3

Question

Chapter 14, Problem 1DQ

To determine

Why oligopolies exist.

Expert Solution & Answer

Explanation of Solution

An oligopoly is a limited competition market. It may exist because of various reasons. The economies of scale are an important reason for an oligopoly. The economies of scale help the firms to produce at the lowest possible average cost. When the firms are producing at the minimum average cost, it will increase the profit of the firms. Only large firms will have good economies of scale and thus, they can easily capture the market. The small firms and new entrants would require investing more capital in order to get the economies of scale. Thus, the small firms cannot produce at the minimum average cost and as a result, they will be eventually driven out of the market leading to the establishment of the oligopoly.

Branding and advertisements have a high impact on the consumers. They will create a strong preference in the consumers over other products and provide a monopolistic power to the seller. Such huge advertising and branding are not possible for the small firms and as a result, they will have to eventually move out of the market because of the loss of the demand and the revenue which will create the oligopoly.

Many large sellers and producers will merge together in order to further strengthen the economies of scale, which will in turn increase their profits by reducing the cost of production. It will force small firms out of the market, creating an oligopoly.

Important examples for oligopoly products that are common in day-to-day life are automobile manufacturers; the companies that produce automobiles are very few in number. Similarly, gasoline producers are very few in number. Even though there are many companies, the manufacturers of computer chips are very few in number. The manufacturers of mobiles, as well as computer operating systems, are very few in number. These are the examples of oligopoly seen day-to-day.

An oligopoly differs from a monopolistic competition in many ways. The main difference is seen in the number of players. There are a large number of players in the monopolistic competition, whereas there are only few in an oligopoly.

The market power is very small in monopolistic competition, but the market share is very high in the oligopoly market. Similarly, the products in the monopolistic competition are differentiated, whereas they are not completely in the oligopoly. The oligopoly market sometimes sells similar products, too.

By and large, there is easy entry and exit to the market in monopolistic competition. But the entry and exit into an oligopoly has strict barriers.

Economics Concept Introduction

Concept introduction:

Oligopoly: It is an imperfect market condition. There will be a few players in the market. The market will be shared between the few sellers, thus. This is why the market condition is known to be in a state of limited competition.

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Answer 4

Question

Chapter 14, Problem 1DQ

To determine

Why oligopolies exist.

Expert Solution & Answer

Explanation of Solution

An oligopoly is a limited competition market. It may exist because of various reasons. The economies of scale are an important reason for an oligopoly. The economies of scale help the firms to produce at the lowest possible average cost. When the firms are producing at the minimum average cost, it will increase the profit of the firms. Only large firms will have good economies of scale and thus, they can easily capture the market. The small firms and new entrants would require investing more capital in order to get the economies of scale. Thus, the small firms cannot produce at the minimum average cost and as a result, they will be eventually driven out of the market leading to the establishment of the oligopoly.

Branding and advertisements have a high impact on the consumers. They will create a strong preference in the consumers over other products and provide a monopolistic power to the seller. Such huge advertising and branding are not possible for the small firms and as a result, they will have to eventually move out of the market because of the loss of the demand and the revenue which will create the oligopoly.

Many large sellers and producers will merge together in order to further strengthen the economies of scale, which will in turn increase their profits by reducing the cost of production. It will force small firms out of the market, creating an oligopoly.

Important examples for oligopoly products that are common in day-to-day life are automobile manufacturers; the companies that produce automobiles are very few in number. Similarly, gasoline producers are very few in number. Even though there are many companies, the manufacturers of computer chips are very few in number. The manufacturers of mobiles, as well as computer operating systems, are very few in number. These are the examples of oligopoly seen day-to-day.

An oligopoly differs from a monopolistic competition in many ways. The main difference is seen in the number of players. There are a large number of players in the monopolistic competition, whereas there are only few in an oligopoly.

The market power is very small in monopolistic competition, but the market share is very high in the oligopoly market. Similarly, the products in the monopolistic competition are differentiated, whereas they are not completely in the oligopoly. The oligopoly market sometimes sells similar products, too.

By and large, there is easy entry and exit to the market in monopolistic competition. But the entry and exit into an oligopoly has strict barriers.

Economics Concept Introduction

Concept introduction:

Oligopoly: It is an imperfect market condition. There will be a few players in the market. The market will be shared between the few sellers, thus. This is why the market condition is known to be in a state of limited competition.

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Subscribe now to access step-by-step solutions to millions of textbook problems written by subject matter experts!

Answer 5

Chapter 14, Problem 1DQ

To determine

Why oligopolies exist.

Expert Solution & Answer

Explanation of Solution

An oligopoly is a limited competition market. It may exist because of various reasons. The economies of scale are an important reason for an oligopoly. The economies of scale help the firms to produce at the lowest possible average cost. When the firms are producing at the minimum average cost, it will increase the profit of the firms. Only large firms will have good economies of scale and thus, they can easily capture the market. The small firms and new entrants would require investing more capital in order to get the economies of scale. Thus, the small firms cannot produce at the minimum average cost and as a result, they will be eventually driven out of the market leading to the establishment of the oligopoly.

Branding and advertisements have a high impact on the consumers. They will create a strong preference in the consumers over other products and provide a monopolistic power to the seller. Such huge advertising and branding are not possible for the small firms and as a result, they will have to eventually move out of the market because of the loss of the demand and the revenue which will create the oligopoly.

Many large sellers and producers will merge together in order to further strengthen the economies of scale, which will in turn increase their profits by reducing the cost of production. It will force small firms out of the market, creating an oligopoly.

Important examples for oligopoly products that are common in day-to-day life are automobile manufacturers; the companies that produce automobiles are very few in number. Similarly, gasoline producers are very few in number. Even though there are many companies, the manufacturers of computer chips are very few in number. The manufacturers of mobiles, as well as computer operating systems, are very few in number. These are the examples of oligopoly seen day-to-day.

An oligopoly differs from a monopolistic competition in many ways. The main difference is seen in the number of players. There are a large number of players in the monopolistic competition, whereas there are only few in an oligopoly.

The market power is very small in monopolistic competition, but the market share is very high in the oligopoly market. Similarly, the products in the monopolistic competition are differentiated, whereas they are not completely in the oligopoly. The oligopoly market sometimes sells similar products, too.

By and large, there is easy entry and exit to the market in monopolistic competition. But the entry and exit into an oligopoly has strict barriers.

Economics Concept Introduction

Concept introduction:

Oligopoly: It is an imperfect market condition. There will be a few players in the market. The market will be shared between the few sellers, thus. This is why the market condition is known to be in a state of limited competition.

Answer 6

Chapter 14, Problem 1DQ

To determine

Why oligopolies exist.

Expert Solution & Answer

Explanation of Solution

An oligopoly is a limited competition market. It may exist because of various reasons. The economies of scale are an important reason for an oligopoly. The economies of scale help the firms to produce at the lowest possible average cost. When the firms are producing at the minimum average cost, it will increase the profit of the firms. Only large firms will have good economies of scale and thus, they can easily capture the market. The small firms and new entrants would require investing more capital in order to get the economies of scale. Thus, the small firms cannot produce at the minimum average cost and as a result, they will be eventually driven out of the market leading to the establishment of the oligopoly.

Branding and advertisements have a high impact on the consumers. They will create a strong preference in the consumers over other products and provide a monopolistic power to the seller. Such huge advertising and branding are not possible for the small firms and as a result, they will have to eventually move out of the market because of the loss of the demand and the revenue which will create the oligopoly.

Many large sellers and producers will merge together in order to further strengthen the economies of scale, which will in turn increase their profits by reducing the cost of production. It will force small firms out of the market, creating an oligopoly.

Important examples for oligopoly products that are common in day-to-day life are automobile manufacturers; the companies that produce automobiles are very few in number. Similarly, gasoline producers are very few in number. Even though there are many companies, the manufacturers of computer chips are very few in number. The manufacturers of mobiles, as well as computer operating systems, are very few in number. These are the examples of oligopoly seen day-to-day.

An oligopoly differs from a monopolistic competition in many ways. The main difference is seen in the number of players. There are a large number of players in the monopolistic competition, whereas there are only few in an oligopoly.

The market power is very small in monopolistic competition, but the market share is very high in the oligopoly market. Similarly, the products in the monopolistic competition are differentiated, whereas they are not completely in the oligopoly. The oligopoly market sometimes sells similar products, too.

By and large, there is easy entry and exit to the market in monopolistic competition. But the entry and exit into an oligopoly has strict barriers.

Economics Concept Introduction

Concept introduction:

Oligopoly: It is an imperfect market condition. There will be a few players in the market. The market will be shared between the few sellers, thus. This is why the market condition is known to be in a state of limited competition.

Answer 7

Chapter 14, Problem 1DQ

To determine

Why oligopolies exist.

Answer 8

Expert Solution & Answer

Explanation of Solution

An oligopoly is a limited competition market. It may exist because of various reasons. The economies of scale are an important reason for an oligopoly. The economies of scale help the firms to produce at the lowest possible average cost. When the firms are producing at the minimum average cost, it will increase the profit of the firms. Only large firms will have good economies of scale and thus, they can easily capture the market. The small firms and new entrants would require investing more capital in order to get the economies of scale. Thus, the small firms cannot produce at the minimum average cost and as a result, they will be eventually driven out of the market leading to the establishment of the oligopoly.

Branding and advertisements have a high impact on the consumers. They will create a strong preference in the consumers over other products and provide a monopolistic power to the seller. Such huge advertising and branding are not possible for the small firms and as a result, they will have to eventually move out of the market because of the loss of the demand and the revenue which will create the oligopoly.

Many large sellers and producers will merge together in order to further strengthen the economies of scale, which will in turn increase their profits by reducing the cost of production. It will force small firms out of the market, creating an oligopoly.

Important examples for oligopoly products that are common in day-to-day life are automobile manufacturers; the companies that produce automobiles are very few in number. Similarly, gasoline producers are very few in number. Even though there are many companies, the manufacturers of computer chips are very few in number. The manufacturers of mobiles, as well as computer operating systems, are very few in number. These are the examples of oligopoly seen day-to-day.

An oligopoly differs from a monopolistic competition in many ways. The main difference is seen in the number of players. There are a large number of players in the monopolistic competition, whereas there are only few in an oligopoly.

The market power is very small in monopolistic competition, but the market share is very high in the oligopoly market. Similarly, the products in the monopolistic competition are differentiated, whereas they are not completely in the oligopoly. The oligopoly market sometimes sells similar products, too.

By and large, there is easy entry and exit to the market in monopolistic competition. But the entry and exit into an oligopoly has strict barriers.

Answer 9

Expert Solution & Answer

Answer 10

Expert Solution & Answer

Answer 11

Economics Concept Introduction

Concept introduction:

Oligopoly: It is an imperfect market condition. There will be a few players in the market. The market will be shared between the few sellers, thus. This is why the market condition is known to be in a state of limited competition.

Answer 12

Ch. 14.2 - Prob. 1QQ Ch. 14.2 - The D2e segment of the demand curve D2eD1 in graph...Ch. 14.2 - Prob. 3QQ Ch. 14.2 - Prob. 4QQ Ch. 14 - Prob. 1DQ Ch. 14 - Prob. 2DQ Ch. 14 - Prob. 3DQ Ch. 14 - Prob. 4DQ Ch. 14 - Prob. 5DQ Ch. 14 - Prob. 6DQ

Why oligopolies exist.

Solution Summary: The author explains that an oligopoly is a limited competition market. The economies of scale help the firms to produce at the lowest possible average cost.

Why oligopolies exist.

Explanation of Solution

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