F Describe Pricing Strategy under each Market Structure

Question 1

Perfect Competition

Answer 1

Optimal price; profit; Max quantity; MC=MR, however MR = P, so P = MC @ profit max Q

Question 2

Monopoly

Answer 2

Optimal price; profit; Max Q; MC = MR, however Monopoly has a -slope; -P ; P>MR>MC

Question 3

Monopolistic Competition

Answer 3

Optimal price; profit;Max Q; MR=MC, also -P; P>MC>MR

*Why MC = MR, not MR = MC like monopoly…

Question 4

Oligopoly (Interdependence of firms pricing and output decisions; profit depends on our assumptions about the reactions of other firms to each firms actions)

Answer 4

Different assumptions(Firm reactions) and possible strategies by each

Assumptions:

Kinked Demand Curve; (Max Q where MR=MC, monopoly Q) Competitors match price decrease but not increase, MR=MC

Collusion; share market(economic profits) to max total industry profits; MaxQ @ MC=MR, and -P from industry demand curve at which Q can be sold (same as -P and Q for a profit maximizing monopoly firm)

Dominant Firm Model; 1 firm has lowest cost structure;(large market share); Max prof. by prod. Q for which its MC = MR and charge P on its firm demand curve for that Q - other firms will take the price as given and produce MC=MR

Game Theory; Long-run outcome is indeterminate; price will be between monopoly price (upon successful collusion) where P>MC>MR and the perfect comp price where P=MC which =’s cost (if potential competition rules out prices above that level)