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 waveed requisite curve: This fabric was developed in 1939 by the economist Sweezy. It assumes that an oligopolist will transmit rival firms to follow either set decrease it makes and non follow whatsoever increase. Thus the elasticity of have for the firms crossway is much great above the ruling price than under it, and hence there is a kink in the invite curve confront by the firm. For straight line read curves the peripheral tax line lies halfway between the take away 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 apostrophize could thus vary greatly but still empower through this discontinuity in marginal revenue. Equally, changes in market demand could shift demand cu rves in and out without affecting the tip of the kink. In short, profit maximising at MC=MR could get out 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 war-ridden markets.

The model has serious errors, however: again it implies a noesis of marginal costs and revenue not feature by real firms; it is not understandably that entrepreneurs hold such pessimistic expectations of the reactions of their competitors: the evidence on price stickiness is not as clear cut as many believ e. But the great flaw is that the model doe! s not rationalise price determination, i.e. it does not explain how the prevailing price was established or what happens when the price is in conclusion changed. Collusive Pricing: Rivalry usually results in get off profits than could be achieved through... If you want to get a liberal essay, order it on our website: OrderCustomPaper.com

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