Chapter 15, Problem 1SPA

To determine

Identify the market demand, and cost curves of both PC chips producers Intel and AMD.

Explanation of Solution

Figure-1 illustrates the market demand curve and cost curve of PC chips producers, Intel, and AMD below:

In figure-1, the x-axis shows the quantity produced by both firms per year and the y-axis shows the price and costs. There are only two producers for PC chips. Thereare no legal barriers to the entry of new firms. Thus, the market for PC chips can be considered as a market for the natural oligopoly than a natural duopoly. However, the given demand curve and the average total cost curve in figure-1 shows the situation for a market in which two firms can satisfy the market demand. Therefore, the newly entered firm will face a cost disadvantage compared to the existing firms. This will prevent the entry of new firms into the PC chips markets which makes the market for PC chips a duopoly.

Economics Concept Introduction

Duopoly: A duopoly is an imperfect market situation, wherein only two sellers produce the goods and services.

Average total cost: The average total cost refers to the cost per unit. It is the summation of the average variable cost and average fixed cost at the particular output.