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 veered requisite curve: This pretending was developed in 1939 by the economist Sweezy. It assumes that an oligopolist will hold off rival firms to follow either set decrease it makes tho non follow whatsoever increase. Thus the elasticity of fill for the firms proceeds is much great above the ruling price than to a lower place it, and hence there is a kink in the aim curve confront by the firm. For straight line contain curves the peripheral tax line lies halfway between the beg curve and the just axis. It is thus easy to show that the kink in the demand curve implies a discontinuity, i.e. a fulminant drop, in the peripheral revenue curve of the firm. Marginal salute could thus vary greatly but still rid of through this discontinuity in marginal revenue. Equally, changes in market demand could shift demand curves in and out without affecting the upside of the kink. In short, profit maximising at MC=MR could pull out price unaffected in spite of considerable fluctuations in costs and demand. The model has been used to let off wherefore prices appear to fluctuate less in oligopolistic markets than in agonistic markets. The model has serious demerits, however: again it implies a companionship of marginal costs and revenue not feature by real firms; it is not lapse that entrepreneurs hold such discouraged 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 explicate price determination, i.e. it does not explain how the prevailing price was established or what happens when the price is in the end changed. Collusive Pricing: Rivalry usually results in unhorse profits than could be achieved through... If you want to g et a wealthy essay, order it on our websit! e: OrderEssay.net

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