Exam 14: Oligopoly and Monopolistic Competition

Two firms compete in a market by selling imperfect substitutes.The demand equations are given by the following equations: Q₁ = 50 - p₁ + p₂ Q₂ = 50 - p₂ + p₁ For now,assume that each firm has a marginal cost and average cost of 0. a.From the equations,how can you tell these goods are substitutes? How can you tell they are imperfect substitutes? b.Suppose the firms compete by simultaneously choosing price.Find the best response function of each firm as a function of the other firm's price. c.Compute the equilibrium price and quantity for each firm. d.Suppose firm 1 (and only firm 1)had a marginal and average cost of $10.How would the equilibrium change? How does this compare to the Bertrand result when the firms sell perfect substitutes?

Mergers may result in

To determine guilt of cartelizing,the antitrust laws use

The market structure of home video gaming systems is best characterized by monopolistic competition.Quasar Entertainment is one of the producers in this market.The inverse demand for Quasar systems is: P = 500 - 9.75Q Quasar's cost function is: C(Q)= 0.25Q² + 6.Determine Quasar's profit maximizing level of output and the price charged to customers.Is the market in a long-run equilibrium?

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

One firm previously operated as a monopoly.Now,one potential entrant exists.Consumers would prefer

Which of the following is a necessary condition for government subsidies to influence a firm to choose an output level as if it were a Stackelberg leader?

In the Cournot model,a firm maximizes profit by selecting

If two firms playing Cournot are identical with decreasing average costs,how should the firms divide production to maximize joint profits?

Two firms sell identical products and compete as Cournot (price-setting)competitors in a market with a demand of p = 150 - Q.Initially,each firm has a constant marginal and average cost of $3 per unit of output. a.Compute each firm's best response function.Plot each of these functions on a graph with q₁ on the horizontal axis and q₂ on the vertical. b.Compute the Cournot equilibrium quantities. c.Suppose that firm 1's cost rises to $4 per unit and firm 2's decreases to $2.On a graph,show how this will change the best response functions.How will the equilibrium change according to the changes you made on the graph?

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

-The above figure shows the reaction functions for two pizza shops in a small isolated town.The Stackelberg leader will produce

Monopolistic Competition and perfect competition differ because

If only two identical firms operate in a market,consumers prefer