1. The following graph depicts the demand curve, marginal revenue curve, and marginal cost curve that an oligopolist faces. The firm is currently charging the cartel price, P*, and producing the cartel quantity, Q*.
Suppose input prices fall and marginal cost decreases
from MC1 to MC2. Based on this event alone, the firm depicted in
the figure above will
2. Suppose one rental car company raises its prices and the rival car companies leave their prices unchanged. But when another rental car company lowers its prices, the other companies match the price decrease. This situation is an example of....
•Incorrect answer for Part 1 (a) was price leadership.
Drop down options for Part 1 (a) that I haven't tried: Tit for tat, the kinked demand curve, collusion.
•Incorrect answer for Part 2 (b) was the market in rental cars is a competitive market.
Drop down options for Part 2 (b) that I haven't tired: The market in rental cars is an oligopoly, Avis is larger than both it's rivals.
Homework Answers
Part a) Since both the marginal cost curves MC1 and MC2 intersect the marginal revenue curve on the section where the marginal revenue curve is vertical, so the decrease in marginal cost from MC1 to MC2will not cause any change in the price.
Part b) One rental car company raises its prices and the rival car companies leave their prices unchanged. But when another rental car company lowers its prices, the other companies match the price decrease. This situation is an example of Tit for tat.
Part c) If the “one rental company” is Avis, then the market in rental cars is an oligopoly.
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33. Gas’n'Go is one of the 20 gas stations in Lafayette,
California. The following diagram shows the demand curve (D),
marginal revenue curve (MR), marginal cost curve (MC) and average
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gasoline is a monopolistically competitive market.
Part 1: Label all curves and identify and label the initial price
(P1) and quantity (Q1).
Part 2: Suppose that the price of oil increases, causing Gas'n'Go's
production costs to also increase (oil...
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