Principles of Economics (12th Edition)
12th Edition
ISBN: 9780134078779
Author: Karl E. Case, Ray C. Fair, Sharon E. Oster
Publisher: PEARSON
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Chapter 14, Problem 4.1P
(a)
To determine
Validating statements on oligopoly
(b)
To determine
Validating statement on oligopoly.
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The diagram illustrate an industry under oligopoly consisting of 10 equal-sized firms, and a particular firm in that industry. Each of the firms produces an identical product.
To what output will an individual firm be restricted if the price is to be maintained?Assume that all firms are permitted to produce the same level of output.
If the other firms stick to this output, how much would an individual firm be tempted to produce if it wished to maximize its own profit at the agreed price?
If it undercut the cartel price, what and output would maximize its profit (assuming the other members did not retaliate)?
In Malaysia, there are only a few firms in the telecommunication industry such as Maxis, Digi, and Celcom. By the theory of economics, this situation is called an oligopoly. Oligopoly, a market dominated by a few large firms of a homogeneous or differentiated product. Explain how the price and output affect the production decision of the individual oligopolist.
A profit-maximizing price searcher will expand output as long as marginal revenue either exceeds or is equal to marginal cost, lowering its price or raising its price until the midpoint of their demand curve and highest total revenues are achieved.
Why are oligopolies able to earn both short-run economic profits and long-run economic profits, while price taking firms like perfect competitors can only earn short-run economic profits?
Chapter 14 Solutions
Principles of Economics (12th Edition)
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Similar questions
- An oligopoly is a market structure in which a. one firm has 100 percent of a market. b. there are many small firms. c. there are many firms with no control over price. d. there are few firms selling either a homogeneous or differentiated product.arrow_forwardThe kinked oligopoly demand curve is a result of the assumption by an oligopolist that a. price increases will be matched, but price reductions will not. b. price increases will not be matched, but price reductions will. c. both price increases and price reductions will be matched. d. neither price increases nor price reductions will be matched.arrow_forwardHow do equilibrium prices in markets characterized by oligopoly compare with those in monopolies and perfectly competitive markets? They are higher than in monopoly markets and higher than in perfectly competitive markets. They are higher than in monopoly markets and lower than in perfectly competitive markets. They are lower than in monopoly markets and higher than in perfectly competitive markets. They are lower than in monopoly markets and lower than in perfectly competitive markets.arrow_forward
- Which of the following scenarios is a negative example of an oligopoly? Wireless phone companies have nearly eliminated standard cell phones, forcing consumers to buy smartphones. Soft drink companies offer several choices to consumers, including regular, diet, zero sugar, and accent flavors such as cherry or lemon. Automobile companies continue to improve vehicles and invent new features to appeal to consumers. Fast-food chains keep prices low to entice consumers.arrow_forwardExplain the difference between price and non-price strategies in an oligopoly and their advantages for consumers.arrow_forwardAn oligopolist faces a kinked demand curve. In your own words, describe why firms face this situation. $600 (5,000, $550) (10,000, $500) $500 $400 (11,000, $300) $300 $200 $100 5,000 10,000 15,000 20,000 Quantity Theory says that oligopolies should stick to the $500.00 price to maximize revenue (see the graph above). Use the graph pictured to calculate elasticity and total revenue in the elastic, inelastic, and unit elastic portions of the demand curve at the price and quantity points specified to explain the theory. | Price ($)arrow_forward
- Discuss the efficiency of oligopoly from society’s standpoint and whether it is more or less efficient than monopoly.arrow_forwardUsing suitable graphs, briefly explain the behavior and basic characteristics of following oligopoly modelsa) Sweezy oligopoly modelb) Cournot oligopoly modelc) Stackelberg oligopoly modeld) Bertrand oligopoly modelProvide a real -world example of a market that approximates each oligopoly setting, and explain your reasoninge) Cournot oligopoly modelf) Stackelberg oligopoly modelg) Bertrand oligopoly modelarrow_forwardOne of the predictions of the oligopoly model is that: non-price competition is uncommon and price-cutting competition among rivals is common. prices tend to remain relatively stable despite short-run fluctuations in market demand. the firms' costs of production (raw material, labor, advertising) remain constant over time. only one buyer (monopsony) will result in the long run. MacBook Pro G Search or type URL * 23 3 41 5 6 7 8. Y U W E tab G s lockarrow_forward
- Economists believe that oligopoly firms have a kinked demand curve. Explain why the oligopoly demand curve has a kink.arrow_forwardWhat is a characteristic of an oligopoly? Group of answer choices Easy entry and exit One firm Many, small firms Some barriers to entryarrow_forwardUsing suitable graphs, briefly explain the behavior and basic characteristics of following oligopoly model a) Bertrand oligopoly modelarrow_forward
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