Compute total cost, total revenue, and total profit/loss. Based on the computed results, you will determine the optimal quantity of output to minimize loss under a monopolistically competitive market. In addition, you will also evaluate the marketing strategies of oligopoly market firms.
INSTRUCTIONS
Format
- . Read the Criteria section below for more information before you begin this assignment.
- Do the firms in an oligopoly act independently or interdependently? Explain your answer.
- A perfectly competitive firm has the following fixed and variable costs in the short run. The market price for the firm’s product is $140.
Output
FC
VC
TC
TR
Profit/Loss
0
$75
$0
___
___
___
1
75
90
___
___
___
2
75
170
___
___
___
3
75
290
___
___
___
4
75
430
___
___
___
5
75
590
___
___
___
6
75
770
___
___
___
- Complete the table.
- What level of output should the firm produce to maximize profits?
- Assume this firm is making a loss when it produces its seventh unit of output. What should the firm do in the short run? Should it operate at loss or shut down in the short run?
- A monopolistically competitive firm has the following demand and cost structure in the short run.
Output
Price
FC
VC
TC
TR
Profit/Loss
0
$85
$25
$0
____
____
________
1
75
____
50
____
____
________
2
65
____
90
____
____
________
3
55
____
130
____
____
________
4
45
____
230
____
____
________
5
35
____
340
____
____
________
6
25
____
450
____
____
________
7
15
____
680
____
____
________
- Complete the table.
- What level of output maximizes profit or minimizes loss?
- Should this firm operate or shut down in the short run? Why?
- Suppose that Wal-World and Tarbo are independently deciding whether to implement a new bar code technology or use the existing bar code. It is less costly for their suppliers to use one system, and the following payoff matrix shows the profits per year for each company resulting from the interaction of their strategies.
(Description of the graph: The payoff matrix shows two oligopoly companies: Wal-World and Tarbo, which are competing to increase their market share and payoffs. They have two strategies, which are playing existing bar code and new bar code. The two companies get different payoffs when they play different strategies. Existing bar code technology: upper-left box Wal-World earns $4 billion/Tarbo earns $3 billion. Upper-right box Wal-World earns $1 billion/Tarbo earns $2 billion. New barcode technology, lower-left box Wal-World earns $3 billion/Tarbo earns $1 billion. lower-right box Wal-World earns $2 bilion/Tarbo earns $4 billion.
- Does Wal-World have a dominant strategy? Briefly explain and justify your analysis.
- Does Tarbo have a dominant strategy? Briefly explain and justify your analysis.
- Is there a Nash equilibrium in this game? Briefly explain and justify your analysis.