Question

Q 1) What is the price leadership model of Oligopoly pricing and what are its tactics?(2 points)

Q 2)" In monopolistically competitive markets, neither allocative nor productive efficiency is realized" explain.(2 points)

Q 3) Do you agree that companies under monopolistic competition can have a profit in the long run?

If yes, why? if no, why not? (2 points)

Q 4) Compare MPP (marginal Physical product of labor) and MRP (marginal revenue product of labor). (2 points)

Q 5) In kinked demand curve of Oligopoly, if a company increases its price, how do its competitors react? If a company cuts its price, how do its competitors react? ( 2 points)

Please answer all five questions with at least 3 sentences each. (10 possible points)

Answer 1

Ans

1 Here a dominant firm sets prices. Other firms which are followers follow the price leader. Thus there is informal agreement which ensures better profits than pure competition

2 There is no allocative efficiency as orice>MC. There us no productive effeciency as output is produced at a level where ATC is not minimum. Thus such market structure leads to inefficiency

3 No because in longrun Demand curve is tangent to ATC. If firms make profits new firms will enter industry untill Demand is tangent to ATC. Thus happens because new entry increases cost and reduces market share of a firm

4 MPP shows change in output as input of labour is varied by one uniy. MRP of labour shows change in revenue of a firm as it increases labour by 1 unit. MRP=MPP(MR)

5 if it increases its price rivals will not increase price.This is because they want to get greater market share at lower price. If it decreases price other firms will decrease their prices to keep intact their market share(demand)