22 An oligopolist is currently charging a price of $170 and is selling 40 units

Question

22 An oligopolist is currently charging a price of $170 and is selling 40 units of output weekly. If the firm increases price above $170, its rivals tend not to follow and the firm thus faces a flatter demand curve P 200-0.75Q. If the firm reduces price below $170, its rivals tend to follow and the firm thus faces a steeper demand curve P =250-2Q. At the current output level, within what range could marginal cost vary without giving the firm an incentive to change the current price? a. (110, 140). (90, 140). (200, 250). d. (170, 200). Answer Questions 23 -24 based on the following information: A monopolist sells his two countries (A and B), with demand function QA 100 10PA and QB respectively. Marginal cost is a constant at $2. product in 1000-150108, To maximize profits, ti a (6 C. (5.2, 8.0).118 e monopolist should charge prices PA, PB): (6.0, 8.5). (4.9, 7.4). d. (4.5, 4.0). 24 To maximize profits, the monopolist should sell quantities QA, QB) (40, 65). (51, 76) (75, 50). (10, 15). a. b. 4. 9 7.4 A market has two firms: A and B. Firm A's market share is 60% and firm B's market share is 40%. Herfindahl index is 25 100 b. 2000. c. 5200. d. 6400. 26 A dominant strategy can best be described as a. a strategy taken by a dominant player. b. the strategy taken by a player in order to dominate its rivals. C.a strategy that is optimal for a player no matter what an opponent does. d. a strategy that leaves every player in a game better off. 27 In a Nash equilibrium, a. each player has a dominant strategy. b. no players have a dominant strategy c. at least one player has a dominant strategy players may or may not have dominant strategies.

Explanation / Answer

Question 22

At price above $170, demand curve is as follows -

P = 200 - 0.75Q

TR = P * Q = (200 - 0.75Q) * Q = 200Q - 0.75Q2

MR = dTR/dQ = d(200Q - 0.75Q2)/dQ = 200 - 1.5Q

At price below $170, demand curve is as follows -

P = 250 - 2Q

TR = P*Q = (250 - 2Q) * Q = 250Q - 2Q2

MR = dTR/dQ = d(250Q - 2Q2)/dQ = 250 - 4Q

The oligopolist will continue to charge $170 per unit if the optimal output remains 40 units.

This value of Q = 40 units will remain optimal until the marginal cost remains between two values of MR as stated above.

MR1 = 200 - 1.5Q = 200 - (1.5*40) = 200 - 60 = 140 (Upper limit)

MR2 = 250 - 4Q = 250 - (4*40) = 250 - 160 = 90 (Lower limit)

So, if MC is between $90 and $140, firm will have no incentive to change price.

The correct answer is the option (b).

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