question
A market is contestable if
answer
1. All firms have access to the same technology
2. Consumers respond quickly to price changes
3. Existing firms cannot respond quickly to entry by lowering their prices
4. There are no sunk costs
2. Consumers respond quickly to price changes
3. Existing firms cannot respond quickly to entry by lowering their prices
4. There are no sunk costs
question
Cournot Oligopoly
answer
An industry in which (1) there are few firms serving many consumers; (2) firms produce either differentiated or homogeneous products; (3) each firm believes rivals will hold their output constant if it changes its output; and (4) barriers to entry exist
question
Sweezy Oligopoly
answer
An industry in which
(1) there are few firms serving many consumers;
(2) firms produce differentiated products;
(3) each firm believes rivals will respond to a price reduction but will not follow a price increase; and (4) barriers to entry exist.
—- Key Takeaway of this model is price rigidity, the finding that although cost may fluctuate farms will not alter their price.
(1) there are few firms serving many consumers;
(2) firms produce differentiated products;
(3) each firm believes rivals will respond to a price reduction but will not follow a price increase; and (4) barriers to entry exist.
—- Key Takeaway of this model is price rigidity, the finding that although cost may fluctuate farms will not alter their price.
question
Stackleberg Oligopoly
answer
An industry which
1. There are a few firms serving many customers
2. Firms produce either differentiated or homogeneous products
3. A single firm (the leader) chooses an output before arrival select their outputs
4. All other firms (The followers) take the leaders output has given and select outputs that maximize profits given the leaders output
5. Barriers to entry exist
1. There are a few firms serving many customers
2. Firms produce either differentiated or homogeneous products
3. A single firm (the leader) chooses an output before arrival select their outputs
4. All other firms (The followers) take the leaders output has given and select outputs that maximize profits given the leaders output
5. Barriers to entry exist
question
Bertrand Oligopoly
answer
an industry in which (1) there are few firms serving many consumers; (2) firms produce identical products at a constant marginal cost; (3) firms compete in price and react optimally to competitors' prices; (4) consumers have perfect information and there are no transaction costs; and (5) barriers to entry exist
question
Increasing MC will result in a reduction in Output in this model.
answer
...
question
Oligopoly
answer
A market structure in which a few large firms dominate a market, each firm is large relative to the total industry.
- there is strategic inter-dependence. What you do affects the profits of your rivals and vice versa.
- there is strategic inter-dependence. What you do affects the profits of your rivals and vice versa.
question
Optimum price and output in a oligopoly depends on:
answer
- The beliefs about the reaction of rivals
- your choice variable (P or Q)
- The nature of the product market (differentiated or identical )
- your choice variable (P or Q)
- The nature of the product market (differentiated or identical )
question
Important implication of the Swezey model
answer
An important implication of the Sweezy model of oligopoly is that there will be a range over which changes in marginal cost do not affect the profit maximizing level of output. This is in contrast to competitive, monopolistically competitive, and monopolistic firms, all of which increase output when marginal cost decline.
question
collusion
answer
Applicable when a market is dominated only by a few firms. Firms can benefit at the expense of consumers by agreeing to restrict output or equivalently to charge higher prices.
- firms secretly agree on Q or P
- firms secretly agree on Q or P
question
Stackleberg Oligopoly
answer
Introduces a leader into the output decisions. Think of Apple.
question
Cournot Equilibrium
answer
A situation in which neither firm has an incentive to change its output given the other firm's output.
question
OPEC
answer
This is a cournot oligopoly that collude to choose Q and raise profits above those that would result in a competitive equilibrium.
question
Implications of Bertrand
answer
- Leads to zero economic profits even if there are only two farms.
- It leads to precisely the same outcome as a perfectly competitive market.
- leads to a price war that doesn't stop until P1=P2=MC
- It leads to precisely the same outcome as a perfectly competitive market.
- leads to a price war that doesn't stop until P1=P2=MC
question
"Bertrand Trap"
answer
Cutthroat competition and price wars that lead to zero profits for both firms.
question
Duopoly
answer
an oligopoly consisting of only two firms
question
Cournot Equilibrium
answer
A situation in which neither firm has an incentive to change its output given the other firm's output.
Order an Essay Now & Get These Features For Free:
Turnitin Report
Formatting
Title Page
Citation
Outline
