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 winded requisite curve: This put was developed in 1939 by the economist Sweezy. It assumes that an oligopolist will transport rival firms to follow either set decrease it makes simply non follow whatsoever increase. Thus the elasticity of acquire for the firms output is much great above the ruling price than downstairs it, and hence there is a kink in the supplicate curve confront by the firm. For straight line request curves the peripheral tax line lies halfway between the call for curve and the just axis. It is thus easy to show that the kink in the demand curve implies a discontinuity, i.e. a emergent drop, in the peripheral revenue curve of the firm. Marginal address could thus vary greatly but still experience through this discontinuity in marginal revenue. Equally, changes in market demand could shif t demand curves in and out without affecting the bill of the kink. In short, profit maximising at MC=MR could bestow price unaffected in spite of considerable fluctuations in costs and demand. The model has been used to let off why prices appear to fluctuate less in oligopolistic markets than in belligerent markets.

The model has serious disfigures, however: again it implies a companionship of marginal costs and revenue not feature by real firms; it is not resolve that entrepreneurs hold such demoralised expectations of the reactions of their competitors: the evidence on price stickiness is not as clear c ut as many believe. But the great flaw is t! hat the model does not let off price determination, i.e. it does not explain how the prevailing price was established or what happens when the price is at last changed. Collusive Pricing: Rivalry usually results in dumbfound profits than could be achieved through... If you want to get a prolific essay, order it on our website: OrderCustomPaper.com

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