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Analysis of Oligopoly Market Dynamics and Globalization Effects on Market Power

This coursework explores a market with two firms producing identical products. Using provided demand and cost functions, we derive the marginal revenue and marginal cost equations for each firm to find their reaction functions. By solving these equations, we determine the equilibrium quantities, equilibrium price, and profits for both firms. Additionally, we analyze the impact of globalization on market power, discussing the opposing views on whether it diminishes or enhances oligopoly market power.

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Analysis of Oligopoly Market Dynamics and Globalization Effects on Market Power

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  1. HWA#3 UIBS Micro-Economics course 18/11/2011 Due 30/11 (Antwerp); 01/12 (Brussels

  2. Question 1 Consider a market with 2 firms, producing an identitical product. Market demand is given by P = 130 – 2(Q1 + Q2) where Q1 is quantity produced by firm 1 and Q2 is quantity produced by firm 2. The total cost for firm 1 is TC1 = 10Q1, for firm 2 = 10Q2. Therefore we have MC1= 10 and MC2 = 10. Marginal revenue for firm 1 is MR1 = 130 - 4Q1 - 2Q2 and for firm 2, MR2 = 130 -2Q1 - 4Q2. Each firm chooses its quantity to maximize profits • Setting MC = MR, find the reaction functions for both firms • Find the equilibrium quantity produced by each firms by solving the the two reaction functions • Find the equilibrium price. • Find the profit at that point for both firms

  3. Question 2 Consider these two statements on the effect of globalization. “Globalization, by opening domestic markets, reduces the market power of oligopolies in those markets.” “Globalization, by increasing the opportunities for economies of scale, increases the chances for build up of market power”. Discuss why or why not... • either of these views are correct • they are both correct

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