Question

WhatsApp Question 3 (Oligopoly): a. Describe the source of tension between cooperation and self-interest in a market characterized by oligopoly. b. Use an example of an actual cartel arrangement to demonstrate why this tension creates instability in cartels. Question 4 (Manopolistic Competition) a. In a small college town, four microbreweries have opened in the past two years. Demonstrate the effect of these new market entrants on demand for incumbent firms (microbreweries that already served this market b. Assume that the local community now places a moratorium on new liquor licences for microbreweries. How will this moratorium affect the long-run profitability of incumbent firms Question 5 (Monopoly): a. Why does the government give patents to pharmaceutical firms that develop new drug & How do the economic theories predict the price of new drugs us the patent period ends? b. Assume that a monopolist decides to maximize revenue rather than protit. How does this operating objective drange the size of the deadweight loss? If you are a "benevolent" manager of a monopoly firm and are interested in reducing the deadweight loss of monopoly, should you maximize profits or maximize revenue? Carefully explain your answer. (Hint: make sure to consider marginal revenue)

Answer 1

Tension between cooperation and self interest of the firm is one the amjor concerning feature of oligopoly.
main reason behind this is that industry's profits are maximized when oligopolists cooperate on decided price and output. but firm's profits can be maximized by going against their cooperative agreement. (setting up a different price than agreed price)
It is always a matter of concern that what to choose over what? a firm can either cooperate with other firms or it can cheat on the agreement.
OPEC is the best example that experiences this condition while determining price of crude oil

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