《微经》课后练习英文答案第十七章.docx
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《微经》课后练习英文答案第十七章.docx
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《微经》课后练习英文答案第十七章
17
Chapter16
Oligopoly
OLIGOPOLY
WHAT’SNEWINTHESIXTHEDITION:
ThereisanewIntheNewsboxon”TheNextBigAntitrustTarget?
”
LEARNINGOBJECTIVES:
Bytheendofthischapter,studentsshouldunderstand:
Øwhatoutcomesarepossiblewhenamarketisanoligopoly.
Øtheprisoners’dilemmaandhowitappliestooligopolyandotherissues.
Øhowtheantitrustlawstrytofostercompetitioninoligopolisticmarkets.
CONTEXTANDPURPOSE:
Chapter17isthefinalchapterinafive-chaptersequencedealingwithfirmbehaviorandtheorganizationofindustry.Chapters14and15discussedthetwoextremeformsofmarketstructure—competitionandmonopoly.Themarketstructurethatliesbetweencompetitionandmonopolyisknownasimperfectcompetition.Therearetwotypesofimperfectcompetition—monopolisticcompetition,whichweaddressedinthepreviouschapter,andoligopoly,whichisthetopicofthecurrentchapter.
ThepurposeofChapter17istoaddressoligopoly—amarketstructureinwhichonlyafewsellersoffersimilaroridenticalproducts.Becausethereareonlyafewsellersinanoligopolisticmarket,oligopolisticfirmsareinterdependentwhereascompetitivefirmsarenot.Thatis,inacompetitivemarket,thedecisionsofonefirmhavenoimpactontheotherfirmsinthemarketwhileinanoligopolisticmarket,thedecisionsofanyonefirmmayaffectthepricingandproductiondecisionsoftheotherfirmsinthemarket.
KEYPOINTS:
∙Oligopolistsmaximizetheirtotalprofitsbyformingacartelandactinglikeamonopolist.Yet,ifoligopolistsmakedecisionsaboutproductionlevelsindividually,theresultisagreaterquantityandalowerpricethanunderthemonopolyoutcome.Thelargerthenumberoffirmsintheoligopoly,thecloserthequantityandpricewillbetothelevelsthatwouldprevailunderperfectcompetition.
∙Theprisoners’dilemmashowsthatself-interestcanpreventpeoplefrommaintainingcooperation,evenwhencooperationisintheirmutualinterest.Thelogicoftheprisoners’dilemmaappliesinmanysituationsincludingarmsraces,advertising,common-resourceproblems,andoligopolies.
∙Policymakersusetheantitrustlawstopreventoligopoliesfromengaginginbehaviorthatreducescompetition.Theapplicationoftheselawscanbecontroversial,becausesomebehaviorthatmayseemtoreducecompetitionmayinfacthavelegitimatebusinesspurposes.
CHAPTEROUTLINE:
I.Definitionofoligopoly:
amarketstructureinwhichonlyafewsellersoffersimilaroridenticalproducts.
II.Definitionofgametheory:
thestudyofhowpeoplebehaveinstrategicsituations.
A.Bystrategic,wemeanasituationinwhicheachperson,indecidingwhatactionstotake,mustconsiderhowothersmightrespondtothataction.
B.Eachfirminanoligopolymustactstrategically,becauseitsprofitnotonlydependsonhowmuchoutputitproduces,butalsoonhowmuchotherfirmsproduceaswell.
III.MarketswithOnlyaFewSellers
A.Akeyfeatureofoligopolyisthetensionbetweencooperationandself-interest.
1.Thegroupofoligopolistsisbetteroffcooperatingandactinglikeamonopolist,producingasmallquantityofoutputandchargingapriceabovemarginalcost.
2.Yet,becausetheoligopolistcaresabouthisownprofit,thereisanincentivetoactonhisown.Thiswilllimittheabilityofthegrouptoactasamonopoly.
B.ADuopolyExample
1.Aduopolyisanoligopolywithonlytwomembers.
Usethisexampleandshowthecompetitiveequilibriumfirst.Then,showthemonopolypriceandoutput.Finally,explainhowthetwosupplierswouldendupproducingaquantitybetweenthecompetitiveandmonopolyoutputandchargingapricebetweenthecompetitivepriceandthemonopolyprice.
2.Example:
JackandJillowntheonlywaterwellsintown.Theyhavetodecidehowmuchwatertobringtotowntosell.(Assumethatthemarginalcostofpumpingeachgallonofwateriszero.)
3.Thedemandforthewaterisasfollows:
Quantity(gallons)
Price
TotalRevenue(andTotalProfit)
0
$120
$0
10
110
1,100
20
100
2,000
30
90
2,700
40
80
3,200
50
70
3,500
60
60
3,600
70
50
3,500
80
40
3,200
90
30
2,700
100
20
2,000
110
10
1,100
120
0
0
C.Competition,Monopolies,andCartels
1.Ifthemarketforwaterwereperfectlycompetitive,pricewouldequalmarginalcost($0).Thismeansthat120gallonsofwaterwouldbesold.
2.Ifamonopolycontrolledthesupplyofwater,profitwouldbemaximizedatapriceof$60andanoutputof60gallons.
a.Notethatinthiscase,price($60)exceedsmarginalcost($0).
b.Thislevelofoutputislowerthanthesociallyefficientlevelofoutput(120gallons).
3.Theduopolistsmayagreetoacttogethertosetthepriceandquantityofwater.
a.Definitionofcollusion:
anagreementamongfirmsinamarketaboutquantitiestoproduceorpricestocharge.
b.Definitionofcartel:
agroupoffirmsactinginunison.
c.IfJillandJackdidcollude,theywouldagreeonthemonopolyoutcomeof60gallonsandapriceof$60.
d.Thecartelmustalsodecidehowtosplittheproductionofwater.Eachmemberwillwantalargersharebecausethatmeansmoreprofit.
TheInformant!
Chapter11(47:
00-53:
50).MattDamonplaysMarkWhitacreinthemoviechroniclingtheprice-fixingscandalatArcherDanielsMidland(ADM).ThisclipshowsWhitacremeetingwithotherexecutivesfromthelysineindustrytosetanagreementtolimitproductionandkeepthepriceoflysinehigh.
4.IntheNews:
PublicPriceFixing
a.Firmsthatmeetinsecrettosetpricesruntheriskofprosecution.
b.ThisisanarticlefromTheWallStreetJournalsuggestingthatfirmsmaycolludebypubliclypostingprices.
D.TheEquilibriumforanOligopoly
1.Itisoftendifficultforoligopoliestoformcartels.
a.Antitrustlawsprohibitagreementsamongfirms.
b.Squabblingamongcartelmembersovertheirsharesisalsolikelytooccur.
2.Intheabsenceofabindingagreement,themonopolyoutcomeisunlikely.
3.AssumethatJackexpectsJilltoproduce30gallonsofwater(halfofthemonopolyoutcome).
a.Jackcouldalsoproduce30gallonsandearnaprofitof$1,800.
b.However,hecouldproduce40gallonsandearnaprofitof$2,000.
c.Jackwillwanttoproduce40gallons.
4.Jillmightreasonthesameway.IfsheexpectsJacktoproduce30gallons,shecouldincreaseherprofitsbyraisingheroutputto40gallons.
5.Ifduopolistspursuetheirownself-interestwhendecidinghowmuchtoproduce,theyproduceaquantitygreaterthanthemonopolyquantity,chargeapricelowerthanthemonopolyprice,andearntotalprofitlessthanthemonopolyprofit.
6.DefinitionofNashequilibrium:
asituationinwhicheconomicactorsinteractingwithoneanothereachchoosetheirbeststrategygiventhestrategiesthatalltheotheractorshavechosen.
7.Inthisexample,theNashequilibriumoccurswhenbothJackandJillareproducing40gallons.
a.GiventhatJackexpectsJilltoproduce40gallons,hewillnotbebetteroffatanyotheroutputlevelthan40gallons.
b.GiventhatJillexpectsJacktoproduce40gallons,shewillnotbebetteroffatanyotheroutputlevelthan40gallons.
8.Notethattheoligopolistscouldearnahighertotalprofitiftheycooperatedwithoneanother,butinsteadpursuetheirownself-interestandearnalowerlevelofprofit.
9.Whenfirmsinanoligopolyindividuallychooseproductiontomaximizeprofit,theyendupsomewherebetweenperfectcompetitionandmonopoly.
a.Thequantityofoutputproducedbytheoligopolyisgreaterthanthelevelproducedbyamonopolybutlessthanthelevelproducedbyacompetitivemarket.
b.Theoligopolypriceislessthanthemonopolypricebutgreaterthanthecompetitiveprice(whichimpliesthatitisgreaterthanmarginalcost).
ABeautifulMind,Chapter5.RussellCroweplaysJohnNashinthismoviebasedlooselyonNash’slife.Inthisscene,Nashisatabarwithfriendsandhasanideaaboutself-interestandgeneralequilibrium.ThesceneisnotperfectandactuallymisstatesthedefinitionofaNashequilibrium.Thisoffersyouachancetoseeifstudentscanidentifytheerror.
E.HowtheSizeofanOligopolyAffectstheMarketOutcome
YoumightwanttopointoutthattheNashequilibriumwillbe(n/n+1)ofthecompetitiveoutput.Therefore,withtwosuppliers,thejointoutput(80units)willbetwo-thirdsofthecompetitiveequilibrium(120units).Thiswillhelptoexplainthatasthenumberoffirmsinanoligopolymarketincreases,themarketoutputquicklyapproachesthecompetitiveoutcome.
1.Whenanoligopolistdecidestoincreaseoutput,twothingsoccur.
a.Becausepriceisgreaterthanmarginalcost,increasingoutputwillincreaseprofit.Thisistheoutputeffect.
b.Becauseincreasingoutputwillraisethetotalquantitysold,thepricewillfallandwillthereforelowerprofit.Thisisthepriceeffect.
2.Thelargerthenumberofsellersintheindustry,thelessconcernedeachsellerisaboutitsownimpactonmarketprice.
3.Thus,asthenumberofsellersinanoligopolygrowslarger,anoligopolisticmarketlooksmoreandmorelikeacompetitivemarket.
a.Pricewillapproachmarginalcost.
b.Thequantityofoutputproducedwillapproachthesociallyefficientlevel.
Activity1—FourMarketsforWidgets
Type:
In-classdemonstration
Topics:
Marketstructureandprice
Materialsneeded:
Sevenvolunteers,money($2.50to$4.00)
Time:
15minutes
Classlimitations:
Worksinanyclasswithmorethan15students
Purpose
Thisillustrateshowdifferentmarketstructurescanresultinwidedifferencesinpricefortheconsumer.Italsoshowshowcommunicationcanincreaseoligopolyprofits.Theopportunitytowinrealmoneycreatesgre
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