Economics (MindTap Course List)
13th Edition
ISBN: 9781337617383
Author: Roger A. Arnold
Publisher: Cengage Learning
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Chapter 24, Problem 9QP
To determine
Explain the firms in tight markets to gain higher profit than the firms in loose markets.
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Students have asked these similar questions
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?
How 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.
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)?
Chapter 24 Solutions
Economics (MindTap Course List)
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- The 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_forwardOligopoly is a market structure in which only a few enterprises can prevent the others from exerting considerable influence. The concentration ratio is a measure of the largest companies' market share. One firm is a monopoly, two firms are a duopoly, and two or more firms are an oligopoly. The number of firms in an oligopoly has no definite upper limit, but it must be small enough that the activities of one firm have a considerable impact on the others. Steel corporations, oil companies, railways, tyre companies, grocery store chains, and cellular providers have all been oligopolies in the past. An oligopoly, according to economic and legal concerns, can stifle new entrants, limit innovation, and raise prices, all of which affect consumers. Instead of collecting prices from the market, firms in an oligopoly determine pricing, whether collectively (in a cartel) or under the leadership of a single enterprise. As a result, profit margins are higher than in a more competitive market.…arrow_forwardIf the oligopoly members agree on a total quantity to produce, what quantity would they choose? Why?arrow_forward
- identify and describe a real world example of an oligopoly. What characteristics of this market fit the definition of an oligopoly? What role does advertising play in this market? Is this consistent with what you’ve learned about advertising and oligopoly in this course?arrow_forwardSuppose oil production in the Gulf of Mexico was a symmetric horizontal oligopoly in Cournot competition. Assume there are two producers, each with a constant marginal cost of production of $50 per barrel. Let the demand function for oil in the region be D(p) = 12000 – 20p, where demand is measured in barrels per day. (You will need to calculate inverse demand from demand before moving on). What would the perfectly competitive equilibrium price and quantity be? What would be the consumer surplus and producer surplus? Draw each firm’s residual inverse demand curve. Calculate the Cournot-Nash equilibrium price and quantity. What is the total consumer surplus, total producer surplus across the two firms, and deadweight loss?arrow_forwardThe French economist Antoine Cournot developed an interesting model of competition in an oligopoly that now bears his name. In a Cournot oligopoly, all of the firms know that the total output from all firms will determine the price (based on the downward-sloping market demand curve), but they make independent and simultaneous decisions about how much output to produce. Cournot developed this model after observing how a spring water duopoly (two firms) behaved. So let’s look at a duopoly example.For each firm to decide how much to produce, it must make a guess about how much the other firm is going to produce. Also, the firms basically assume that once the other firm has decided how much to produce, it can’t really change its decision.Here’s an example. Suppose the market demand curve for gallons of fresh spring water looks like the one below and, to keep things simple, the marginal cost of spring water is zero. If Firm X believes that Firm Y is going to produce 100 gallons of spring…arrow_forward
- You are asked to model an oligopoly market with the following characteristics: firms produce an undifferentiated product, choose quantities sequentially, and let the market determine the price. Which oligopoly model would best predict actual behavior in this market?arrow_forwardHow can a kinked demand curve indicate that the firms in the oligopoly will continue to behave as a cartel and not have an incentive to deviate from the cartel? If the firms in the oligopoly collude to restrict output, the firms implicitly agree to increase prices if a firm in the oligopoly increases prices. If the firms in the oligopoly collude to restrict output, the firms implicitly agree to cut prices if a firm in the oligopoly cuts prices. If the firms in the oligopoly collude to restrict output, the firms implicitly agree to cut the quantity produced if a firm in the oligopoly cut prices. If the firms in the oligopoly collude to restrict output, the firms implicitly agree to increase quantity if a firm in the oligopoly increases prices.arrow_forwardOutline the characteristics of an oligopoly and explain why firms in this particular market structure face a choice between competition and collusion.arrow_forward
- Explain why there are only a few firm's in an oligopoly market.arrow_forwardA duopoly faces an inverse market demand of: p= 390 - 341 - 392. You are told that firm 1 is the leader and firm 2 is the follower. Otherwise the firms are identical, each with a constant marginal cost of $90. What oligopoly model will you use to analyze this market? The Stackelberg model At the Nash equilibrium, firm 1 will produce 60.0 units. (Round your answer to one decimal place.) At the Nash equilibrium, firm 2 will produce 30.0 units. (Round your answer to one decimal place.)arrow_forwardWhich 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_forward
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