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15 Cards in this Set
- Front
- Back
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what are the 3 assumptions of the theory of oligopoly
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1. few sellers and many buyers
2.firms producing either homogeneous or differentiated products 3. there are significant barriers to entry |
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how do you calculate a four firm concentration ratio.
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The percentage of industry sales accounted for by four largest firms
ex. 5 million a year, 4.5 of the 4 firms. so 90% |
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what are the characteristics / assumptions of the cartel theory in oligopoly?
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behavioral assumption is that oligopolists in an industry act as if there were only one firm in the industry. A cartel is an organization of firms that reduces output and increase price in an effort to increase joint profits
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what is the role of the dominant and fring e firms in the price leadership theory?
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the dominant firm in the industry determines price, the fringe firms take their price as given.
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how does the dominant firms determine price?
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after calculating residual demand curve it finds an output where MR=MC and charges the highest price it can, this is the price the fringe firms take. they supply less than prior equilibrium and dominant takes the rest and a little bit more
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In the Kinked demand theory of Oligopoly: what happenes when a single firm raises its price?
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the others will do nothing
demand curve highly elastic sales decrease |
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In the Kinked demand theory of Oligopoly: what happenes when a single firm lowers its price
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others will match it
sale slightly increase less elastic |
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In the Kinked demand theory of Oligopoly: what portion of the demand curve is elastic, above or below the kink
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above
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In the Kinked demand theory of Oligopoly: what happens to the magnitude of the change in quantity when prices go up if the demand curve is elastic
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quantity goes down
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In the Kinked demand theory of Oligopoly: what portion of the demand curve is inelastic?
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below the kink
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In the Kinked demand theory of Oligopoly: what happenes to the magnitude of the change in quantity when prices go up if the demand curve is inelastic
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quantity goes up
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How do you calculate MPP (Marginal physical product)
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the change in the quantity of output \ the change in quantity of factor
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How do you calculate MRP (Marginal Revenue product)
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1. the change in Total revenue \ the change in quantity of the factor
2. marginal revenue x Marginal physical product |
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How do you calculate VMP (Value Marginal Product)
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Profit x Marginal Physical Product
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Define MRP (Marginal Revenue Product)
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the additional revenue generated by employing an additional factor unit
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