Two firms produce the same commodity; quantities , total . Inverse demand is . Firms have constant average costs . Assume , and . If increases, then
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2 marks, −0.666666666666667MicroeconomicsMonopolistic competition and oligopolyCournot competitionHardabout 3 min
DSE 2014 Question 34: Monopolistic competition and oligopoly
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Two firms produce the same commodity; quantities x₁,x₂, total X=x₁+x₂. Inverse demand is P=a-bX. Firms have constant average costs c₁,c₂. Assume b>0, 0<c₁<c₂<a and a+c₁>2c₂. If a increases, then (A) the market share of firm 1 increases and price increases (B) the market share of firm 1 decreases and price increases (C) the market share of firm 1 increases and price decreases (D) the market share of firm 1 decreases and price decreases
Also written as: Two firms produce the same commodity; quantities x_1,x_2, total X=x_1+x_2. Inverse demand is P=a-bX. Firms have constant average costs c_1,c_2. Assume b>0, 0<c_1<c_2<a and a+c_1>2c_2. If a increases, then
Monopolistic competition and oligopoly has come up 104 times in 7 exams since 2004.
What this question tests
This question is on Cournot competition, part of Monopolistic competition and oligopoly in Microeconomics.
Firms choosing quantities simultaneously, reaction curves, and equilibrium as the number of firms or costs change.
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