Consider a homogeneous-goods market with two firms. Let and be the quantities of Firms 1 and 2, and . Inverse demand is , with and ; both firms have the same marginal cost .
Suppose Firm 1 maximises revenue and Firm 2 maximises profit, and both choose quantities simultaneously. Then:
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Consider a homogeneous-goods market with two firms. Let x₁ and x₂ be the quantities of Firms 1 and 2, and X=x₁+x₂. Inverse demand is P=a-bX, with b>0 and 0<3c<a; both firms have the same marginal cost c. Suppose Firm 1 maximises revenue and Firm 2 maximises profit, and both choose quantities simultaneously. Then: (A) Firm 1 has larger market share and larger profits (B) Firm 2 has smaller market share but larger profits (C) Firm 1 has smaller market share but larger profits (D) Firm 2 has larger market share and larger profits
Also written as: Consider a homogeneous-goods market with two firms. Let x_1 and x_2 be the quantities of Firms 1 and 2, and X=x_1+x_2. Inverse demand is P=a-bX, with b>0 and 0<3c<a; both firms have the same marginal cost c. Suppose Firm 1 maximises revenue and Firm 2 maximises profit, and both choose quantities simultaneously. Then:
Monopolistic competition and oligopoly has come up 104 times in 7 exams since 2004.
This question is on Market structures, concentration and managerial models, part of Monopolistic competition and oligopoly in Microeconomics.
Classifying market structures, measuring concentration, and alternative models of the firm.
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Question from the DSE 2016 paper. Solutions are TestStop's own. Not affiliated with or endorsed by any examination authority.