Microeconomic Theory, Price Policy in Oligopoly.

Microeconomic Theory Price Policy in Oligopoly Instr.: Dr. Michael Chletsos Submitted by: Maria Soulimioti Price-output behavior in Oligopoly The gimmicked requisite curve: This example was developed in 1939 by the economist Sweezy. It assumes that an oligopolist will reside rival firms to follow either set decrease it makes exclusively non follow whatsoever increase. Thus the elasticity of drive for the firms merchandise is much great above the ruling price than at a lower place it, and hence there is a kink in the deal curve confront by the firm. For straight line pack curves the peripheral tax line lies halfway between the demand curve and the just axis. It is thus easy to show that the kink in the demand curve implies a discontinuity, i.e. a sharp drop, in the peripheral revenue curve of the firm. Marginal apostrophize could thus vary greatly but still throw through this discontinuity in marginal revenue. Equally, changes in market demand could shift demand curves in and out without affecting the peak of the kink. In short, profit maximising at MC=MR could quit price unaffected in spite of considerable fluctuations in costs and demand. The model has been used to let off why prices appear to fluctuate less in oligopolistic markets than in emulous markets.

The model has serious fractures, however: again it implies a companionship of marginal costs and revenue not feature by real firms; it is not bring in that entrepreneurs hold such bearish expectations of the reactions of their competitors: the evidence on price stickiness is not as clear cut as many believe. But the great flaw is that the model does not condone price determination, i.e. it does not explain how! the prevailing price was established or what happens when the price is at last changed. Collusive Pricing: Rivalry usually results in get profits than could be achieved through... If you want to get a enough essay, order it on our website: OrderEssay.net

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