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?
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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 dilemma xxxxxxxx why xxxxxxxxxxx can xx mutually xxxxxxxxxx but xx conditions xxxxxxx cooperation xx collusion xxxx happening xxx outcome xx worse xxx both xxxxxxx What xx the xxxxx of xxx kinked-demand xxxxx Explain xxx reason xxx the xxx in xxx oligopolist 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 s xxxxxx curve xxx price xxxxxxxxxx of x and xxxxxxx advertising xx is x If xx is xxxx is xxx difference xx the xxxxxxxxxxxxxxxxx price xxxxxxx The xxxx firm xxxxxxxxxxxxx ratio xx the xxxxxxxxxx of xxx value xx total xxxxx accounted xxx by xxx four xxxxxxx firms xx an xxxxxxxx In xxxx general xxxxx it xx the xxxxxx share xx the xxxx largest xxxxx in xx industry xxxx a xxxxxx structure xxxxxxxxxx if xxx four xxxx concentration xxxxx is xxxxxxx than xxx market xx an xxxxxxxxx If xx is xxxx than xx is xxxxxxxxxxxx competition xxxx from xxx above xxxxxxxxx we xxx assume xxxx the xxx four xxxxx with xxx highest xxxxxx have x combined xxxxxx of xx the xxxxxxxx and xxx rest xx the xxxxxx comes xxxx independents xxxx there xx an xxxxxxxxx there xxx a xxxxx number xx firms xxxxxxxxxxx a xxxxx part xx the xxxxxxxx The xxxxxxx of xxxx firm xxxx impact xxx other xxxxx for xxxxxxx through xxxxxxxx prices xx finding xxx suppliers x payoff xxxxxx is x way xx representing xxx possible xxxxxxxx when xxxx of xxx firms xxxx discrete xxxxxxx They xxx be xxxx to xxxxxxx what xxxx firm xxxx do xxxxxxxx rational xxxxxxxxxxxxx each xxxx will xxxx the xxxxxxx which xxxxxxxx its xxx profit xxx matrix xxxxx the xxxx possible xxxxxx outcomes xxx each xx two xxxxx depending xx which xx the xxx price xxxxxxxxxx each xxxxxxx Example xx C xxxx price xx and x at x s xxxxxxx will xx and x s xxxx we xxx say xxxx C xxx D xxx interdependent xxxxxxx their xxxxxxx depend xxx just xx their xxx price xxx also xx the xxxxx firm x price xx the xxxxxxxx s xxxxxxx collaboration xx dominated xx betrayal xxxxxxx if xxx party xxxxxxx to xxxx silent xxxx the xxxxx party xxxx get x better xxxxxx thus xx each xxxxx is xxxxxx in xxxxxxxxxxxxx without xxxxxxxxx she xxxx turn xx the xxxxx party xxx reason xx that xxxx holding x 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 x product xxx oligopolies xxxxx rather xxx compete xx a xxxxx of xxxxx Oligopolists xxx increase xxxxx market xxxxx through xxxxxxxxxxx that xx financed xxxx economic xxxxxxx from xxxx advertising xxxxxxxxx Advertising xxx operate xx a xxxxxxx to xxxxx Advertising xxxxxxxx information xxxxx new xxxxxxxx and xxxxxxx improvements xx the xxxxxxxx Advertising xxx result xx an xxxxxxxx in xxxxxxxxxxx by xxxxxxxxx new xxxxxxxx and xxxxxxx improvements xxxx advertising x increase xx price xxxxxxx in x decrease xx quantity xxxxxxx advertising x increase xx price xxxxxxx in x decrease xx quantity xxxxx P xxx PED x MC xx have xxxx advertising x - x x xxxxxxx advertising x - x x xx the xxxxxxxxxx in xxxxxxxxxxxxxxxxx price xx This xxxxx that xxxxxxxxxxx can xxxx demand xxxx elastic xxxxx results xx higher xxxxxxMore Articles From Economics
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