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Chapter 10: Q.11 (page 252)

Will the firms in an oligopoly act more like a

monopoly or more like competitors? Briefly explain.

Short Answer

Expert verified

Oligopoly will behave like both the monopoly and competitor.

Step by step solution

01

Step 1. Oligopoly.

A market with a small number of sellers such that each seller has a significant market share and the decision of one seller affects the others, is referred to as an oligopoly firm.

02

Step 2. Explanation

A firm in an oligopoly will behave like a competitor as they try to grab market share from each other, to increase their market supremacy. But, if these firms join hands, they will be able to act as a a monopoly and determine price and quantity in the market.

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Most popular questions from this chapter

Andrea鈥檚 Day Spa began to offer a relaxing

aromatherapy treatment. The firm asks you how much to charge to maximize profits. The first two columns in Table 10.5provide the price and quantity for the demand curve for treatments. The third column shows its total costs. For each level of output, calculate total revenue, marginal revenue, average cost, and marginal cost. What is the profit-maximizing level of output for the treatments and how much will the firm earn in profits?

Price Quantity TC
\(25.00 0 \)130
\(24.00 10 \)275
\(23.00 20\)435
\(22.50 30 \)610
\(22.00 40 \)800
\(21.60 50 \)1,005
\(21.20 60 \)1,225

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.

a. 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?

b. Suppose now that the cartel 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?

c. Compare the equilibrium price, quantity, and profit for the cartel and cutthroat competition outcomes.

If the firms in a monopolistically competitive market

are earning economic profits or losses in the short run, would you expect them to continue doing so in the long run? Why?

Make a case for why monopolistically competitive industries never reach long-run equilibrium.

Does each individual in a prisoner鈥檚 dilemma benefit more from cooperation or from pursuing self-interest? Explain briefly.
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