(Collusive Duopoly Model) There are two firmsproducing widgets. It costs the first firm q1 dollars to produceq1 widgets and the second firm 0.5q2 2 dollars to produce q2widgets. If a total of q widgets are produced, consumerswill pay $200 q for each widget. If the two manufacturerswant to collude in an attempt to maximize the sum of theirprofits, how many widgets should each company produce?

(Collusive Duopoly Model) There are two firmsproducing widgets. It costs the first firm q1 dollars to produceq1 widgets and the second firm 0.5q2 2 dollars to produce q2widgets. If a total of q widgets are produced, consumerswill pay $200 q for each widget. If the two manufacturerswant to collude in an attempt to maximize the sum of theirprofits, how many widgets should each company produce?

Principles of Microeconomics

7th Edition

ISBN:9781305156050

Author:N. Gregory Mankiw

Publisher:N. Gregory Mankiw

Chapter17: Oligopoly

Section: Chapter Questions

Problem 1CQQ

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Question 1 Assume the market for a product can be described as a Cournot duopoly with two identical firms. The Nash-equilibrium in this market is that the two firms produce the same quantity. Hence, they will have identical market shares, each will have 50%. Assume that firm 1 decides to invest in a technology that reduces its marginal costs. a) What will happen to the two firms market shares? You must explain how you find the answer. b) What will happen to total production and the price of the product? Again, explain your answer.
q52 If you advertise and your rival advertises, you each will earn 14 million in profits. If neither of you advertises, you will each earn 20 million in profits. However, if one of you advertises and the other does not, the firm that advertises will earn 10 million and the non-advertising firm will earn 16 million. If you and your rival plan to be in business for only one year, the Nash equilibrium is a. for each firm to advertise. b. for the other firm to advertise and your firm not to advertise. c. for your firm to advertise and the other not to advertise. d. for neither firm to advertise.
7. High-tech Industry Synergy and Dynaco are the only two firms in a specific high-tech industry. They face the following payoff matrix as they decide upon the size of their research budget: Synergy's Decision Large Budget Small Budget Dynaco's Decision Large Budget $30 million, $20 million $70 million, $0 Small Budget $0, $30 million $50 million, $40 million If Synergy believes Dynaco will go with a large budget, it will choose a budget. If Synergy believes Dynaco will go with a small budget, it will choose a budget. Therefore, Synergy a dominant strategy. If Dynaco believes Synergy will go with a large budget, it will choose a budget. If Dynaco believes Synergy will go with a small budget, it will choose a budget. Therefore, Dynaco a dominant strategy. True or False: There is a Nash equilibrium for this scenario. (Hint: Look closely at the definition of Nash equilibrium.) True False
Q1. Which is which? Identify the oligopoly model based on the description. Two Firms, high barriers to Entry, Firms sell identical goods, Firms simultaneously choose output______(a. Cournot Duopoly b. Monopolistic Duopoly c. Bertrand Duopoly d. Stackelberg Duopoly) Two Firms, high barriers to entry, Firms sell identical goods, Firms simultaneously choose prices______(a. Stackelberg Duopoly b. Bertrand Duopoly c. Hotelling Duopoly d. Cournot Duopoly) Few Firms, low barriers to entry, firms sell substitutes but differentiated goods______(a. Monopolistic Competition b. Bertrand Oligopoly c. Bertrand Competition with Differentiated Goods d. Cournot Oligopoly) Two firms, high barriers to entry, firms sequentially choose output______(a. Stackelberg Duopoly b. Bertrand Duopoly c. Cournot Duopoly d. Monopolistic Competition)
5. To advertise or not to advertise Suppose that Expresso and Beantown are the only two firms that sell coffee. The following payoff matrix shows the profit (in millions of dollars) each company will earn depending on whether or not it advertises:
10. please quikcly thanks ! Which of the following situations would create conducive environment for the practice of effective collusive oligopoly? A. Slow increase in the number of potential producers. B. Demand curve becomes less elastic for the collusive oligopoly's product. C. Rivals ignore price cuts but follow price increases. D. All firms avoid nonprice competition.
Q3 The Competition Bureau in Canada wants to increase competition and reduce monopoly power. Thus it it worries about industry concentration Assume that Canada's production of plastic sheds, which we further assume is an oligopoly. Collusive control over the price of plastic sheds in Canada may permit oligopolists in the industry to: Multiple Choice advertise and take advantage of the competitors in the Canadian plastic shed industry. reduce uncertainty, increase profits, and possibly limit entry of new firms in the Canadian plastic shed industry. increase product demand, increase product supply, and lower cost in the Canadian plastic shed industry. achieve economies of scale, reduce costs, and prevent price cheating in the Canadian plastic shed industry. use new technology, achieve economies of scale, and get government subsidies for the Canadian plastic shed industry.
Question1 Next time you are shopping at the supermarket (or imagine you are there), what is a good example of a good (not a brand name) that is sold in an oligopoly market? What is the good? What are the major manufacturers (be sure to turn the package over so you are now confusing brand names with the manufacturer)? Which characteristics of an oligopoly market are shown here (few dominant producers; identical prices; high barriers to entry)?
Game Theory a) Consider the following game represented by the game tree below. If you observe Blue Bank playing medium and Green Bank playing bottom, would you be surprised by their choices? Carefully explain why or why not. b) Now assume that Blue and Green Banks play the game with the same actions and payoffs as in a) but they make their choices simultaneously. What is the payoff matrix for this new game? What do you predict will happen in the game? Explain. c) Assume that the game from part a) is played five times, i.e. Blue and Green Banks play a repeated game with the stage game described in a). What do you predict will happen in the game? Explain.
q19 If you advertise and your rival advertises, you each will earn $4 million in profits. If neither of you advertises, you will each earn $10 million in profits. However, if one of you advertises and the other does not, the firm that advertises will earn $1 million and the non-advertising firm will earn $5 million. If you and your rival plan to be in business for 10 years, then the Nash equilibrium is a. for each firm to not advertise in any year. b. for neither firm to advertise in early years but to advertise in later years. c. for each firm to advertise every year. d. for each firm to advertise in early years but not advertise in later years.
What is the distinguishing characteristics of oligopoly in relation to the other forms of the other market organizations? What is its significance? In which sector of the USA economy is oligopoly most relevant?An oligopolistic firm from the telecommunication industry in USA follows demand-and-cost situation in 2009.Price in USD($) Quantity Total cost20 7 3619 8 4518 9 5417 10 6316 11 7215 12 81i. How much output should the oligopolistic produce? What price should it charge and what is the maximum profit can this firm earns?
5. Oligopoly terminology Suppose three companies, Optimax, Megachug, and Thirstoid, dominate the sports drink market. Optimax enjoys the largest market share. Each time Optimax changes the price of its sports drink, the other two firms match its price. This is an example of: a. a price war b. price leadership c. a cartel