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D6
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- Consider the curve in the figure below, which shows the market demand. marginal cost, and marginal revenue curve for firms in an oligopolistic industry. In this example, we assume firms have zero fixed costs. Suppose the firms collude to form a cartel. What price will the cartel charge? What quantity will the cartel supply? How much profit will the cartel earn? Suppose now that the cane] breaks up and the oligopolistic firms compete as vigorously as possible by cutting the price and increasing sales. What will be the industry quantity and price? What will be the collective profits of all firms in the industry? Compare the equilibrium price, quantity, and profit for the cartel and cutthroat competition outcomes.What stops oligopolists from acting together as a monopolist and earning the highest possible level of profits?Would you expect the kinked demand curve to be more extreme (like a right angle) or less extreme (like a normal demand curve) if each film in the cartel produces a near-identical product Like OPEC and petroleum? What if each film produces a somewhat different product? Explain your reasoning.
- 2. Why are telecom industries across different economies in the world, in general, oligopolies?1.ALCOA does not have the monopoly power it oncehad. How do you suppose their barriers to entry wereweakened? 2.For many years, the Justice Department has triedto break up large firms like IBM, Microsoft, and mostrecently Google, on the grounds that their large marketshare made them essentially monopolies. In a globalmarket, where U.S. firms compete with firms from othercountries, would this policy make the same sense as itmight in a purely domestic context?2. Which is a better market structure, Monopoly or Oligopoly? Why?
- Make a case that neither pure competition nor pure monopoly is conducive to a great deal of R&D spending and innovation. Why might oligopoly be more favorable to R&D spending and innovation than either pure competition or pure monopoly? What is the inverted-U theory of R&D, and how does it relate to your answers to these questions?1.(a) What monopolistic strategies do telecom operators adopt sometimes? 1.(b) What would happen if those strategies remained unregulated? 1.(c) How do telecom policy makers solve this problem?4. Imagine a market with demand P = 420 – Q in each period. Two firms are thinking about colluding. They each have cost C(Qi) = 60Qi. If they cooperate and behave as a monopoly, then they have a marginal revenue curve, MRm = 420 – 2Q, and a marginal cost curve, MCm = 60. If they are in a cartel, then the firms will split the monopoly production and profits. If they compete, then they face MRi = 420 – 2Qi – Q-I and MCi = 60. d)Suppose the firms assume that their interaction will last forever (r = 1) and they share the common discount value R. What is the lowest value of R such that both firms are willing to continue with the cartel agreement described above?
- 1. Should the U.S. government regulate more, less, or take no antitrust action against the Big Tech firms?With specific examples (of industries) discuss at 2 factors against monopolies in the USA4. Imagine a market with demand P = 420 – Q in each period. Two firms are thinking about colluding. They each have cost C(Qi) = 60Qi. If they cooperate and behave as a monopoly, then they have a marginal revenue curve, MRm = 420 – 2Q, and a marginal cost curve, MCm = 60. If they are in a cartel, then the firms will split the monopoly production and profits. If they compete, then they face MRi = 420 – 2Qi – Q-I and MCi = 60. a. If the firms stick to their agreement (cooperate), how much per-period profit do they each make? b. If they are not able to maintain their agreement (compete), what is their per-period profit? c. If one firm cheats on their agreement (deviate), how much does each firm make? Be sure to specify both the profit for the cheater and the firm cheated-on. d. Suppose the firms assume that their interaction will last forever (r = 1) and they share the common discount value R. What is the lowest value of R such that both firms are willing to continue with the cartel…
