Intro Worksheet Ch. 16 Oligopoly Introduction Qz form A

Intro Worksheet • Ch. 16 Oligopoly Introduction Qz form A • Oligopoly: Jack and Jill alternative questions • Prisoners Dilemma and Dominant Strategy notes • Practice 1 • Study Guide and Self Test • Ch 16 FRQ – turned in • 2007 AP FRQ • Notes Packet (Kinked Demand Curve) • Kinked Demand Curve Quiz • Ch 16 Public Policy Towards Oligopoly • 2009 and 2010 AP FRQ

Jack and Jill Alternative Questions 1. 3 Firms in cartel. Market P, Q, Profit? Market P = $60, Q = 60, Profit = $3600 P, Q, and Profit for each firm? • Firm A : P = $60, Q = 20, Profit = $1200 • Firm B: P = $60, Q = 20, Profit = $1200 • Firm C: P = $60, Q = 20, Profit = $1200 Does Any Firm Have the incentive to change?

2. assume Firm A breaks the agreement and produces 10 more units. • What is the market P, Q, and Profit? • What is the P, Q, and Profit for each firm? • Market P = $50, Q = 70, Profit = $3500 Firm A: P = $50, Q = 30, Profit = $1500 Firm B: P = $50, Q = 20, Profit = $1000 Firm C: P = $50, Q = 20, Profit = $1000 Does any firm have the incentive to change?

After firm A produced more, now assume Firm B produces 10 more units. What is the market P, Q, and Profit? • Market P = $40, Q = 80, Profit = $3200 • What is the P, Q, and Profit for each firm? • Firm A: P = $40, Q = 30, Profit = $1200 • Firm B: P = $40, Q = 30, Profit = $1200 • Firm C: P = $40, Q = 20, Profit = $800 • After Firm B brought 10 more , does any firm have the incentive to change

After firm B produced more, now assume Firm C produces 10 more units. • What is the market P, Q, and Profit? • Market P = $30, Q = 90, Profit = $2700 • What is the P, Q, and Profit for each firm? • Firm A: P = $30, Q = 30, Profit = $900 • Firm B: P = $30, Q = 30, Profit = $900 • Firm C: P = $30, Q = 30, Profit = $900 After Firm C brought 10 more, does any firm have the incentive to break the cartel agreement. No……. = Nash Equilibrium COMPARE OUTCOMES : BETTER FOR SOCIETY? BETTER FOR FIRMS?

Assume there are only two firms in this oligopoly. They face a $300 fixed cost per year. They have reached a cartel agreement. What is the market P, Q, and Profit? What is the P, Q, and Profit for each firm? • Market P = $60, Q = 60, Profit = $3000 {TR(3600) – TC (600)} • Firm A: P = $60, Q = 30, Profit = $1500 {TR 1800 – TC 300} • Firm B: P = $60, Q = 30, Profit = $1500 {TR 1800 – TC 300}

Back side • Each firm’s dominant strategy • Concede • Nash Equilibrium? • Both Concede: A = -$20 b B = -$15 b • Would either firm change?

Laurel Advertise Don’t Advertise Advertise Don’t Adver Janet

Practice 1 Worksheet • A. Consider a few firms in an oligopoly that operate as a cartel • What is the market output? i. 1200 • What is the market price? ii. $18 • Each firm Q = 600 P = 18 profit 10,800

B. Assume that this market is characterized by a duopoly in which collusive agreements are illegal. • What is the market output if they reach the Nash Equilibrium? • 1600 • ii. What is the market price if they reach the Nash Equilibrium? • 12 • What is the output for each firm if they reach the Nash Equilibrium? • 800 • What is the profit for each firm if they reach the Nash Equilibrium? • 9600

C. Assume that this market is served by three identical firms who operate without a collusive agreement. • What is the market output if they reach the Nash Equilibrium? • 1800 ii. What is the market price if they reach the Nash Equilibrium? 9 • What is the output for each firm if they reach the Nash Equilibrium? • 600 • What is the profit for each firm if they reach the Nash Equilibrium? 5400

Dominant Strategy for US ? None If China imposes, trade value for US? (assume US will not renew) = 65 How can China not impose and still benefit? (assume US would renew) = China 275

Intro Worksheet Ch. 16 Oligopoly Introduction Qz form A