What is the profit maximizing rule for oligopolies?
The oligopolist maximizes profits by equating marginal revenue with marginal cost, which results in an equilibrium output of Q units and an equilibrium price of P. The oligopolist faces a kinked‐demand curve because of competition from other oligopolists in the market.
What is oligopoly curve?
Answer: In an oligopolistic market, the kinked demand curve hypothesis states that the firm faces a demand curve with a kink at the prevailing price level. The curve is more elastic above the kink and less elastic below it. This means that the response to a price increase is less than the response to a price decrease.
What is the slope of the demand curve in an oligopoly market?
The answer is b: downward sloping. The demand curve in oligopoly markets slopes downward.
Why is oligopoly graph kinked?
The kinked demand curve illustrates the interdependence of firms in an oligopoly market. The reason why there is a kink in the demand curve is that there are two demand curves: one that is inelastic and one that is elastic. The kink occurs when both demand curves intersect each other.
How do oligopolies make profit?
An oligopoly is a situation where a few firms sell most or all of the goods in a market. Oligopolists earn their highest profits if they can band together as a cartel and act like a monopolist by reducing output and raising price.
How do you find profit maximizing oligopoly price?
Just to be clear, QA is the amount that Firm A produces and QB is the amount that Firm B produces. MRA=200−4QA−2QB.
Does oligopoly have a downward sloping demand curve?
What is profit maximization theory?
The profit maximization theory is the principle that every firm should operate in order to make a profit. Profitable companies can achieve this by selling more by charging higher prices for their goods or services and reducing production costs.
Why demand curve in oligopoly is downward sloping?
In monopolistic competition, firms try to differentiate their products and by doing so gain some degree of market power, reflected in the ability in varying its price somewhat. Hence the demand curves for those firms will be downward sloping, too.
Where is profit maximization on a monopoly graph?
The firm can use the points on the demand curve D to calculate total revenue, and then, based on total revenue, calculate its marginal revenue curve. The profit-maximizing quantity will occur where MR = MC—or at the last possible point before marginal costs start exceeding marginal revenue.
What is a profit graph?
A risk graph (or profit graph) is a two-dimensional graphical representation that displays the range of profit or loss possibilities for an options trade. The horizontal axis of a risk graph shows the price of an underlying security at its expiration date, while the vertical axis shows potential profit or loss.
Do oligopolies profit in the long run?
Oligopolies retain abnormal long run profits. High barriers of entry prevent sideline firms from entering the market to capture excess profits. Product differentiation. It can be homogeneous (steel) or differentiated (automobiles).
How do you find profit maximization?
The profit-maximizing choice for the monopoly will be to produce at the quantity where marginal revenue is equal to marginal cost: that is, MR = MC. If the monopoly produces a lower quantity, then MR > MC at those levels of output, and the firm can make higher profits by expanding output.
Do oligopolies make profit in the short run?
What is the slope of the demand curve in a oligopoly market?