Question

Question 3 Assume you are the owner of a large firm. There are three firms the size of your firm in this market. All firms have equal market share. None of these three firms are big enough to service the entire market demand on its own. You would like to make more profits. Indeed, the owners of all three firms would like to increase their profits. a. what market structure best describes the market in which you operate, outline its characteristics? b. what strategy could you implement to improve profits, illustrate with a diagram C. outline five things you would do once the strategic change has been made.

Answer 1

Q3. Ans. a) The market structure is Oligopoly. Characteristics :

• Few sellers
• Government Intervention
• Homogenous / Heterogenous product
• High level of interdependence on each other
• Kinked Demand curve

b) In order to improve profits, Cartels need to be formed amongst the players.Cartels is an association formed by the players where they decide the market share and profits mutually. Profits are maximized using Kinked demand curve in oligopoly.

Elastic Curve Kimbed Demand Curve Prevailing Duelastic Curve Output

c) Five things to do once the strategic change has been made :

Decide the market share mutually

Decide the price mutually

Cartel formation

Growth in the market

Increase the advertising expenditure to raise the sales revenue.