Question.2988 - 1. If the four-firm concentration ratio of an industry is 75%, what does it mean? 2. Explain how payoff matrices used in Game Theory illustrate mutual interdependence among firms in oligopolies. How can they be used to predict likely outcomes? 3. Explain, using the prisoners’ dilemma analysis, why cooperation can be mutually beneficial, but if conditions prevent cooperation or collusion from happening, the outcome is worse for both parties. 4. What is the basis of the kinked-demand model? Explain the reason for the gap in the oligopolist’s marginal-revenue curve. How does this model explain price rigidity in oligopoly? 5. Why is advertising prevalent in many oligopolies, especially when industry demand is inelastic? Illustrate your answer by assuming that with advertising, a firm’s demand curve has price elasticity of -1.5 and without advertising, it is -2. If MC is $10, what is the difference in the profit- maximizing price?
Answer Below:
Homework xxxxxxx Sets xx the xxxxxxxxx concentration xxxxx of xx industry xx what xxxx it xxxx Explain xxx payoff xxxxxxxx used xx Game xxxxxx illustrate xxxxxx interdependence xxxxx firms xx oligopolies xxx can xxxx be xxxx to xxxxxxx likely xxxxxxxx Explain xxxxx the xxxxxxxxx rsquo xxxxxxx analysis xxx cooperation xxx be xxxxxxxx beneficial xxx if xxxxxxxxxx prevent xxxxxxxxxxx or xxxxxxxxx from xxxxxxxxx the xxxxxxx is xxxxx for xxxx parties xxxx is xxx basis xx the xxxxxxxxxxxxx model xxxxxxx the xxxxxx for xxx gap xx the xxxxxxxxxxx rsquo x marginal-revenue xxxxx How xxxx this xxxxx explain xxxxx rigidity xx oligopoly xxx is xxxxxxxxxxx prevalent xx many xxxxxxxxxxx especially xxxx industry xxxxxx is xxxxxxxxx Illustrate xxxx answer xx assuming xxxx with xxxxxxxxxxx a xxxx rsquo x demand xxxxx has xxxxx elasticity xx - xxx without xxxxxxxxxxx it xx - xx MC xx what xx the xxxxxxxxxx in xxx profit-maximizing xxxxx Answers xxx four xxxx concentration xxxxx is xxx percentage xx the xxxxx of xxxxx sales xxxxxxxxx for xx the xxxx largest xxxxx in xx industry xx more xxxxxxx terms xx is xxx market xxxxx of xxx four xxxxxxx firms xx an xxxxxxxx From x market xxxxxxxxx standpoint xx the xxxx firm xxxxxxxxxxxxx ratio xx greater xxxx the xxxxxx is xx oligopoly xx it xx less xxxx it xx monopolistic xxxxxxxxxxx Thus xxxx the xxxxx statement xx can xxxxxx that xxx top xxxx firms xxxx the xxxxxxx output xxxx a xxxxxxxx output xx of xxx industry xxx the xxxx of xxx output xxxxx from xxxxxxxxxxxx When xxxxx is xx oligopoly xxxxx are x small xxxxxx of xxxxx controlling x large xxxx of xxx industry xxx actions xx each xxxx thus xxxxxx the xxxxx firms xxx example xxxxxxx lowering xxxxxx or xxxxxxx new xxxxxxxxx A xxxxxx matrix xx a xxx of xxxxxxxxxxxx the xxxxxxxx outcomes xxxx some xx the xxxxx face xxxxxxxx choices xxxx can xx used xx predict xxxx each xxxx will xx assuming xxxxxxxx self-interest xxxx firm xxxx make xxx choices xxxxx maximize xxx own xxxxxx The xxxxxx shows xxx four xxxxxxxx profit xxxxxxxx for xxxx of xxx firms xxxxxxxxx on xxxxx of xxx two xxxxx strategies xxxx follows xxxxxxx If x sets xxxxx at xxx D xx C xxxxx s xxxxxxx will xx and x rsquo x Thus xx can xxx that x and x are xxxxxxxxxxxxxx because xxxxx profits xxxxxx not xxxx on xxxxx own xxxxx but xxxx on xxx other xxxx rsquo x price xx the xxxxxxxx amp x dilemma xxxxxxxxxxxxx is xxxxxxxxx by xxxxxxxx because xx the xxxxx chooses xx stay xxxxxx then xxx other xxxxx will xxx a xxxxxx reward xxxx if xxxx party xx acting xx self-interest xxxxxxx collusion xxx will xxxx in xxx other xxxxx The xxxxxx is xxxx when xxxxxxx B xxx s xxxxxx constant x will xxxxxx have xxxx to xxxx by xxxxxxx in x Thus xxx equilibrium xx this xxxx is xxxx party xxxxxxx in xxx other xxx result xx a xxxxxx prison xxxxxxxx for xxxx parties xxxx they xxxxx get xx they xxxxxxxxxx The xxxxxxxxxxx in xxx kinked xxxxxx curve xxx Rivals xxxx match xxxxx cuts xxxxxx will xxxxxx price xxxxxxxxxxxx gap xx the xx curve xxxxxxx from xxx abrupt xxxxxx in xxx slope xx the xxxxxx curve xx the xxxxx price xxxxx will xxx change xxxxx price xxxxxxx they xxxx that xx they xx their xxxxx revenue xxx profits xxxx fall xxxxxx demand xxxxxx arise xxxx the xxxxxxxxxx of xxxxx prices xxxxxxx that xxxxxx in xxx real xxxxx do xxx respond xxxxxxxxxxx to xxxxxxx in xxxxxxxx cost xx revenue xxxxx they xxxxx under xxxxxxxxx assumptions xx the xxxxxx demand xxxxx the xxxxxx curve xx still xxxxxxxxxxxxxxxx but xxx a xxxxxxxxxxxxx So xxx first xxxxxxxxxx at xxx discontinuity xx undefined xxxxx is xxx the xxxxxxxx revenue xxxxx has x jump xxxxxxxxxxxxx at xxxx point xxx ways xxx oligopoly xxxxx to xxxxxxxx economic xxxxxxx are xxxxxxx product xxxxxxxxxxx and xxxxxxxxxxx Also xxxxxxxxxxx will xxxxxxxx the xxxxxx for xxx firm xxxxx s xxxxxxx The xxxxxxxxxxx would xxxxxx not xxxxxxx on x basis xx price xxxxxxxxxxxx can xxxxxxxx their xxxxxx share xxxxxxx advertising xxxx is xxxxxxxx with xxxxxxxx profits xxxx past xxxxxxxxxxx campaigns xxxxxxxxxxx can xxxxxxx as x barrier xx entry xxxxxxxxxxx provides xxxxxxxxxxx about xxx products xxx product xxxxxxxxxxxx to xxx consumer xxxxxxxxxxx may xxxxxx in xx increase xx competition xx promoting xxx products xxx product xxxxxxxxxxxx With xxxxxxxxxxx a xxxxxxxx in xxxxx results xx a xxxxxxxx in xxxxxxxx Without xxxxxxxxxxx a xxxxxxxx in xxxxx results xx a xxxxxxxx in xxxxxxxx Using x PED xxx x xx we xxxx with xxxxxxxxxxx P x - x without xxxxxxxxxxx P x - x So xxx difference xx profit-maximizing xxxxx is xxxx shows xxxx advertising xxx make xxxxxx less xxxxxxx which xxxxxxx in xxxxxx pricesMore Articles From Economics
.ico)
.ico)
.ico)
.ico)
