1. Intro Worksheet Ch. 16 Oligopoly Introduction Qz form A Oligopoly: Jack and Jill alternative questions Prisoners Dilemma and Dominant Strategy notes Practice 1 Study Guide and Self Test Ch 16 FRQ – turned in 2007 AP FRQ Notes Packet (Kinked Demand Curve) Kinked Demand Curve Quiz Ch 16 Public Policy Towards Oligopoly 2009 and 2010 AP FRQ

2. Jack and Jill Alternative Questions 1. 3 Firms in cartel. Market P, Q, Profit? Market P = $60, Q = 60, Profit = $3600 P, Q, and Profit for each firm? Firm A : P = $60, Q = 20, Profit = $1200 Firm B: P = $60, Q = 20, Profit = $1200 Firm C: P = $60, Q = 20, Profit = $1200 Does Any Firm Have the incentive to change?

3. QuantityPriceTotal Rev and Profit 50703500 60 3600 70503500 80403200 90302700 2. assume Firm A breaks the agreement and produces 10 more units. What is the market P, Q, and Profit? What is the P, Q, and Profit for each firm? Market P = $50, Q = 70, Profit = $3500 Firm A: P = $50, Q = 30, Profit = $1500 Firm B: P = $50, Q = 20, Profit = $1000 Firm C: P = $50, Q = 20, Profit = $1000 Does any firm have the incentive to change?

4. 1.After firm A produced more, now assume Firm B produces 10 more units. What is the market P, Q, and Profit? Market P = $40, Q = 80, Profit = $3200 What is the P, Q, and Profit for each firm? Firm A: P = $40, Q = 30, Profit = $1200 Firm B: P = $40, Q = 30, Profit = $1200 Firm C: P = $40, Q = 20, Profit = $800 After Firm B brought 10 more, does any firm have the incentive to change

5. After firm B produced more, now assume Firm C produces 10 more units. What is the market P, Q, and Profit? Market P = $30, Q = 90, Profit = $2700 What is the P, Q, and Profit for each firm? Firm A: P = $30, Q = 30, Profit = $900 Firm B: P = $30, Q = 30, Profit = $900 Firm C: P = $30, Q = 30, Profit = $900 After Firm C brought 10 more, does any firm have the incentive to break the cartel agreement. No……. = Nash Equilibrium COMPARE OUTCOMES : BETTER FOR SOCIETY? BETTER FOR FIRMS?

6. Assume there are only two firms in this oligopoly. They face a $300 fixed cost per year. They have reached a cartel agreement. What is the market P, Q, and Profit? What is the P, Q, and Profit for each firm? Market P = $60, Q = 60, Profit = $3000 {TR(3600) – TC (600)} Firm A: P = $60, Q = 30, Profit = $1500 {TR 1800 – TC 300} Firm B: P = $60, Q = 30, Profit = $1500 {TR 1800 – TC 300}

7. Back side Each firm’s dominant strategy Concede Nash Equilibrium? Both Concede: A = -$20 b B = -$15 b Would either firm change? Firm A ConcedeArgue Firm BConcedeA = -20 B = -15 A = -50 B = -5 ArgueA = -5 B= -50 A = -10 B = -10

8. 5,000 2,000 12,000 2,000 10,000 Laurel AdvertiseDon’t Advertise Janet Advertise Don’t Adver

9. Practice 1 Worksheet QuantityPriceTotal Rev and Profit 10002121000 12001821600 14001521000 16001219200 1800916200 2000612000 A. Consider a few firms in an oligopoly that operate as a cartel What is the market output? i. 1200 What is the market price? ii. $18 Each firm Q = 600 P = 18 profit 10,800

10. QuantityPriceTotal Rev and Profit 10002121000 12001821600 14001521000 16001219200 1800916200 2000612000 B. Assume that this market is characterized by a duopoly in which collusive agreements are illegal. i.What is the market output if they reach the Nash Equilibrium? 1600 ii. What is the market price if they reach the Nash Equilibrium? 12 What is the output for each firm if they reach the Nash Equilibrium? 800 What is the profit for each firm if they reach the Nash Equilibrium? 9600

11. QuantityPriceTotal Rev and Profit 10002121000 12001821600 14001521000 16001219200 1800916200 2000612000 C. Assume that this market is served by three identical firms who operate without a collusive agreement. i.What is the market output if they reach the Nash Equilibrium? 1800 ii. What is the market price if they reach the Nash Equilibrium? 9 What is the output for each firm if they reach the Nash Equilibrium? 600 What is the profit for each firm if they reach the Nash Equilibrium? 5400

12. China Impose SanctionsDon’t Impose USDon’t RenewUS = 65 China = 75 US = 140 China = 5 RenewUS = 35 China = 285 US = 160 China = 275 Dominant Strategy for US ? None If China imposes, trade value for US? (assume US will not renew) = 65 How can China not impose and still benefit? (assume US would renew) = China 275