
a)
Whether it will increase or decrease the likelihood that a firm will collude with other firms in an oligopoly market structure to limit the output when the firm's initial market share is small.
a)

Explanation of Solution
As the firm will produce a negative
Introduction: Competitors who collude covertly to coordinate their conduct by agreeing to share information but not explicitly exchanging it are said to be acting in collusion.
b)
Whether it will increase or decrease the likelihood that a firm will collude with other firms in an oligopoly market structure to limit the output when the firm has a cost advantage over its rivals
b)

Explanation of Solution
The firm will lower the price by acting uncooperatively and increasing output. Since its competitors have higher expenses, they will lose money at the cheaper price while the company keeps making money. By raising its output, the company may be able to force its competitors out of business.
Therefore, there would be a decrease in the likelihood that the firm will collude with other firms in an oligopoly market structure to limit the output in this case.
Introduction: Competitors who collude covertly to coordinate their conduct by agreeing to share information but not explicitly exchanging it are said to be acting in collusion.
c)
Whether it will increase or decrease the likelihood that a firm will collude with other firms in an oligopoly market structure to limit the output when the firm's customers face additional costs at the time they switch from one firm's product to another firm's product.
c)

Explanation of Solution
There will be an increase in the likelihood that the firm will collude with other firms in an oligopoly market structure to limit the output because the firm would need to significantly reduce its pricing with a corresponding increase in quantity so that it can persuade consumers to switch to its product as it is expensive for consumers to transfer products. It is, therefore, likely that increasing output will not be economical due to the large negative pricing effect.
Introduction: Competitors who collude covertly to coordinate their conduct by agreeing to share information but not explicitly exchanging it are said to be acting in collusion.
d)
Whether it will increase or decrease the likelihood that a firm will collude with other firms in an oligopoly market structure to limit the output when the firm and its rivals are currently operating at maximum production capacity, which cannot be changed in the short run
d)

Explanation of Solution
This will make it more likely for the company to collude in this case.
Due to its present production capacity, it is unable to expand sales, rendering attempts to undercut rivals' pricing as per the Bertrand model futile due to the inability to create the output required to win over the competitors' customers.
As a result, the decision to help limit output is somewhat alluring in this case.
Introduction: Competitors who collude covertly to coordinate their conduct by agreeing to share information but not explicitly exchanging it are said to be acting in collusion.
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Chapter 64 Solutions
Krugman's Economics For The Ap® Course
- MC The diagram shows a pharmaceutical firm's demand curve and marginal cost curve for a new heart medication for which the firm holds a 20-year patent on its production. Assume this pharmaceutical firm charges a single price for its drug. At its profit-maximizing level of output, it will generate a total profit represented by OA. areas J+K. B. areas F+I+H+G+J+K OC. areas E+F+I+H+G. D. - it is not possible to determine with the informatio OE. the sum of areas A through K. (...) Po P1 Price F P2 E H 0 G B Q MR D ōarrow_forwardPrice Quantity $26 0 The marketing department of $24 20,000 Johnny Rockabilly's record company $22 40,000 has determined that the demand for his $20 60,000 latest CD is given in the table at right. $18 80,000 $16 100,000 $14 120,000 The record company's costs consist of a $240,000 fixed cost of recording the CD, an $8 per CD variable cost of producing and distributing the CD, plus the cost of paying Johnny for his creative talent. The company is considering two plans for paying Johnny. Plan 1: Johnny receives a zero fixed recording fee and a $4 per CD royalty for each CD that is sold. Plan 2: Johnny receives a $400,000 fixed recording fee and zero royalty per CD sold. Under either plan, the record company will choose the price of Johnny's CD so as to maximize its (the record company's) profit. The record company's profit is the revenues minus costs, where the costs include the costs of production, distribution, and the payment made to Johnny. Johnny's payment will be be under plan 2 as…arrow_forwardWhich of the following is the best example of perfect price discrimination? A. Universities give entry scholarships to poorer students. B. Students pay lower prices at the local theatre. ○ C. A hotel charges for its rooms according to the number of days left before the check-in date. ○ D. People who collect the mail coupons get discounts at the local food store. ○ E. An airline offers a discount to students.arrow_forward
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