Question

In: Economics

An oligopoly firm faces a kinked demand curve with the two segments given by: P =...

An oligopoly firm faces a kinked demand curve with the two segments given by: P = 230 – 0.5Q and P = 280 – 1.5Q. The firm currently has a constant marginal cost, MC of $150.

State the assumptions of the kinked demand model in terms of price-matching and elasticity.

Determine the quantity and price at the kink.

Calculate how much higher the marginal cost must be before the firms would change the profit-maximizing output and therefore the price.

Expert Solution

a)

The Assumption of the kinked demand curve model is that the competitor of the oligopoly firm matches its rival prices in case of a price cut, thus the portion of the demand curve is relatively inelastic to the right of a kink. On the other hand, the rivals do not follow a price increase and thus the demand curve is relatively elastic to the left of the kink.

b)

At the kink both portions of the demand curve intersect. Therefore at the kink

c)

The firm has a discontinuous MR curve at Q=50. The MR segment for both the curve is

At Q=50,

As long as MC lies between these two MR, or 180<MC<130, the firm will produce at the kink. To change the price and quantity the MC must rise above $180 or fall below $130.

The MC must rise above $180 to change the price and quantity.

Rahul Sunny answered 1 month ago

In the kinked -demand curve theory of oligopoly ,price is relatively inflexible because a firm contemplating...

In the kinked -demand curve theory of oligopoly ,price is relatively inflexible because a firm contemplating a price change assumes that's its rivals will follow a price cut and ignore a price increase. a) In terms of the above , fully discuss the kinked demand curve theory of an oligoplogist. (Answer should be 2 typed pages long) Answer should be structured in the following: 1)introduction 2)definition of Oligopoly 3) assumptions of the model 4)conclusion

7) Draw the possible kinked demand curve facing an oligopoly firm? At what point does the...

7) Draw the possible kinked demand curve facing an oligopoly firm? At what point does the firm produce? What happens to price and output if marginal costs change? Explain why there is a kink in the demand curve. What do the other firms do when an oligopoly firm raises its price and when it lowers its price?

a) A duopolist faces a market demand curve given by P = 56-2Q . Each firm...

a) A duopolist faces a market demand curve given by P = 56-2Q . Each firm can produce output at a constant MC of $20 per unit. find the equilibrium quantity for the market. b) A duopolist faces a market demand curve given by P = 56-2Q . Each firm can produce output at a constant MC of $20 per unit. Firm one is the leading firm and makes the first decision. find the equilibrium quantity for the market.

Subject Economics: QUESTION TWO: 2.1 Explain the kinked demand curve theory of an oligopoly. Include in...

Subject Economics: QUESTION TWO: 2.1 Explain the kinked demand curve theory of an oligopoly. Include in your answer a discussion of a contemporary oligopoly.

Firm A sells a good and faces an inverse demand curve of P = 120 –...

Firm A sells a good and faces an inverse demand curve of P = 120 – Q, has constant marginal costs of 60 and no fixed costs (c) For each of the following four situations: (1) state whether you would expect quantities Qa and Qb to rise, stay the same or fall, and (2) provide a brief (two to three sentence maximum) explanation. Note: I’m not looking for nor expecting *any* calculation here. A brief explanation of how and why...

2.1 Explain the kinked demand curve theory of an oligopoly. Include in your answer a discussion...

2.1 Explain the kinked demand curve theory of an oligopoly. Include in your answer a discussion of a contemporary oligopoly. (13) 2.2 Discuss and motivate whether the following market structures can engage in price discrimination. 2.2.1 Perfect competition 2.2.2 Monopoly

Suppose that a firm faces the demand curve, P = 100 - 3Q, where P denotes...

Suppose that a firm faces the demand curve, P = 100 - 3Q, where P denotes price in dollars and Q denotes total unit sales. The cost equation is TC = 200 + 22Q. a. Determine the firm’s profit-maximizing output and price. b. Suppose that there is a change in the production process so that the cost equation becomes TC = 80 + 12Q + Q2. Determine the resulting effect on the firm’s output: c. Using the two...

Consider an oligopoly with 2 firms. The inverse demand curve is given by P = 100...

Consider an oligopoly with 2 firms. The inverse demand curve is given by P = 100 – Q1 – Q2. Firm 1’s total cost function is TC1 = 30Q1. Firm 2’s total cost function is TC2 = 20Q2. Assume now that the firms compete by choosing their prices simultaneously, so it is a Bertrand Oligopoly model. Assume that firms choose prices in 0.01 in intervals. (i.e. A firm can choose to charge $10.00 or $10.01, but not $10.005). a) Consider...

A firm faces the demand curve: P = 4,762 - 5Q. What is the firm’s revenue...

A firm faces the demand curve: P = 4,762 - 5Q. What is the firm’s revenue maximizing price

A firm with market power faces an inverse demand curve of P = 100 – 10Q....

A firm with market power faces an inverse demand curve of P = 100 – 10Q. Assume that the firm faces a marginal cost curve of MC = 10 + 10Q. (4)a. If the firm cannot price discriminate, what are the profit maximizing levels of output and price? (4)b. Given you answers in part “a,” what are the values of consumer surplus, producer surplus and deadweight welfare loss? (4)c. If the firm is able to practice first degree (perfect) price...