Economics

Unit 5 Assignment

Student Name:

Please answer the following questions. Submit as a Microsoft Word® document to the Dropbox when completed.

1. Do the firms in an oligopoly act independently or interdependently? Explain your answer.

If the firms in oligopoly independently it would be like the gasoline in the United States it is dominated by the bigger firms such as Mobil and Exxon but then you have the smaller independent gas stations which sell in a limited region. So the strategy depends on interaction.

Firms in an oligopoly act interdependently because the demand for one firms output depends on the actions of its rival firms and this makes the decisions making difficult regarding price and output levels. The prime rate for example the interest rate in which the interest rates are better for their better customers and changes in the prime takes place in very short periods of time at convenience of the bank. This is what a cooperative equilibrium would be like.

2. A monopolistically competitive firm has the following demand and cost structure in the short run:

Output Price FC VC TC TR Profit/Loss

0 $90 $90 $ $90 $0 $(90)

1 80 $90 40 $130 $80 $(50)

2 70 $90 80 $170 $140 $(30)

3 60 $90 140 $230 $180 $(50)

4 50 $90 220 $310 $200 $(110)

5 40 $90 320 $410 $200 $(210)

6 30 $90 440 $530 $180 $(350)

7 20 $90 580 $670 $140 $(530)

a. Complete the table.

b. What level of output maximizes profit or minimizes loss?

The level of output minimized loss is for #3 for the -$20

c. Should this firm operate or shut down in the short run? Why?

The firm should continue to operate because its loss will only be $20 so if it shut down and produce 0 then its loss would be $90.

3. Suppose that Wal-World and Tarbo are independently deciding whether to implement a new bar code technology. It is less costly for their suppliers to use one system and the following payoff matrix shows the...