Page 206 - DECO405_MANAGERIAL_ECONOMICS

Unit 12: Oligopoly

5. There is an oligopoly consisting of 4 firms. Assume that the marginal cost of production is Notes
Rs10 per unit of the good. Demand at price X is given as:
P Q
60 0
50 100

40 200
30 300
20 400
10 500
0 600

What are the price and output levels in an oligopoly Nash Equilibrium?
6. Assume that firms in the short-run are earning above normal profits. Explain what will
happen to these profits in the long-run for the following markets:

(a) Pure Monopoly
(b) Oligopoly
(c) Monopolistic Competition
(d) Perfect Competition
7. The following list is a number of well-known companies and their products. Which of the
four types of markets (perfect competition, monopoly, monopolistic competition and
oligopoly) best characterize the markets in which they compete? Explain why.

(a) Mcdonald's-hamburgers.
(b) exxon-gasoline.
(c) IBB-personal computers
(d) Heinz
8. Comment on the following statements with logical reasoning and appropriate diagrams.

(a) In oligopoly, there is no one single determinate solution, but a number of determinate
solutions depending upon different assumptions.
(b) The success of price leadership of a firm depends upon the correctness of his estimates
about the reactions of his followers.
(c) The kinked demand curve theory explains why a price once determined would
remain sticky but does not determine that price level.

9. Why might oligopolists be more likely to match a price cut than a price increase by a
competitor?
10. What is price leadership? Explain price leadership with the help of real world examples.
11. As a manager, what might be the different types of barriers to entry an oligopoly? How
will you react and what will be your different ways of strategic behaviour for entry?
12. ‘Globalisation and high level of competition have resulted in oligopolies emerging in
many market sectors’. Discuss with examples.

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