ECO2101 Imperfect Competition (4)

Question 1

What is an oligopoly?

Answer 1

A market structure with a small number of large firms that dominate the industry and have significant influence over prices and market outcomes.

Question 2

What are the firms problem in an oligopoly?

Answer 2

Assign a profit outcome to each alternative
Rank each alternative
Choose the optimal alternative

Question 3

What is the relationship between firms in an oligopoly?

Answer 3

Firms are interdependent, meaning decisions such as pricing, output or marketing directly affect and are affected by rival firms.

Question 4

What is Cournot competition?

Answer 4

A model of oligopoly where firms compete by choosing quantities of output and realise its impact on competitors and price.

Question 5

What is the second order condition for a profit maximum?

Answer 5

second derivative > 0

Question 6

How would we mathematically define q1* as the level of output given demand, cost conditions and output from firm 2? (Cournot competition)

Answer 6

check ppt (45)

Question 7

What is cournot nash equilibrium?

Answer 7

A list of output levels from each firm and the resulting market price e.g
check ppt (45 bottom)

Question 8

Draw a graph of firm 1 profit given demand, cost conditions and output set by firm 2

Answer 8

check ppt (46)

Question 9

What is the equation for q1*?

Answer 9

check ppt 46

Question 10

Draw the reaction function of (q1,q2)

Answer 10

check ppt 47

Question 11

What would be the Firm 2 maximising profit equation?

Answer 11

Same as firm 1 but q1 and q2 swapped check ppt 47

Question 12

How would you solve for q1 and q2

Answer 12

check ppt 48

Question 12

Once q1 and q2 are solved how do you find Cournot equilibrium price?

Answer 12

check ppt 49