Exam 14: Oligopoly and Monopolistic Competition

Suppose the demand for Pepsi is qp = 54 - 2pp + 1p.The demand for Coke is qc = 54 - 2pc + 1pp.Each firm faces a constant marginal cost of zero.Determine the Bertrand equilibrium prices.What happens to the Bertrand equilibrium prices and profits if increased differentiation causes the demand for Pepsi to become qp = 104 - 2pp + 1pc while the demand for Coke remains unchanged?

In a Bertrand model,graphically,the intersection of all firms' best-response curves determines

Suppose that market demand can be represented as p = 100 - 2Q.There are 10 identical firms producing an undifferentiated product,each with the total cost function TC = 50 + q².Compare the competitive outcome with the cartel outcome.What is the individual firm's incentive to cheat on the cartel?

In a Bertrand duopoly with product differentiation,explain how a change in one firm's marginal cost can have an effect on the price charged by the other firm.

Consider two Cournot competitors selling complementary goods with demand curves given by: p₁ = 100 - q₁ + .5q₂ p₂ = 100 - q₂ + .5q₁ Suppose each firm has a marginal and average cost of $10. a.What about the demand equations indicate that these goods are complements? How do they differ from the standard Cournot model? b.Find the equilibrium prices and quantities. c.Suppose the two firms merge.By doing so,the newly merged firm will act to maximize the joint profits ((q₁,q₂)= ₁(q₁,q₂)+ ₂(q₁,q₂)).Find the joint-profit maximizing price and quantities. d.Are the combined profits greater or smaller from merging? That is,is merging profitable for the firms? e.Are consumers better or worse off with the firms merging? How does this compare to the mergers of Cournot competitors selling substitutes? What does this imply about antitrust policy towards mergers of firms selling complementary goods (such as airplanes and engines,computers and processors,cars and tire companies,etc).

The benefits from cartelizing are greater if

Two firms sell 100% orange juice in 10 ounce bottles.The juice is only good for one week.The two firms have contracts for all the oranges produced in a large geographic area.Each firm decides how many bottles of juice to produce at the same time.This market is best described with a

Suppose the demand for Pepsi is qp = 50 - 2pp + 1pc.The firm faces a constant marginal cost of m,and pc denotes the price of Coke.Assuming Bertrand behavior,derive Pepsi's best-response function and explain how the firm changes price in response to changes in its own marginal cost and changes in Coke's price.

Suppose a market with a Cournot structure has five firms and a market price elasticity of demand equal to -2.What is a Cournot firm's Lerner Index?

A group of firms are selling undifferentiated products if

Suppose the demand for pizza in a small isolated town is p = 10 - Q.There are only two firms,A and B.Each has a cost function TC = 2 + Q.Determine the equilibrium quantities of each if firm A is the Stackelberg leader.

One criticism of the Bertrand pricing model is that

For the following, please answer "True" or "False" and explain why. -Collusion is more successful in a game that will continue forever or in a game with an uncertain ending time,than in a game with a known ending time.

To determine guilt of cartelizing,the antitrust laws use