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In microeconomics, the Bertrand–Edgeworth model of price-setting oligopoly looks at what happens when there is a homogeneous product (i.e. consumers want to buy from the cheapest seller) where there is a limit to the output of firms which are willing and able to sell at a particular price. This differs from the Bertrand competition model ...
If the firms are colluding in the oligopoly, they can set the price at a high profit-maximising level. Perfect and imperfect knowledge: Oligopolies have perfect knowledge of their own cost and demand functions, but their inter-firm information may be incomplete. If firms in an oligopoly collude, information between firms then may become perfect.
p 1 = firm 1's price level pr unit; p 2 = firm 2's price level pr unit; b 1 = slope coefficient for how much firm 2's price affects firm 1's demand; b 2 = slope coefficient for how much firm 1's price affects firm 2's demand; q 1 =A 1-a 1 *p 1 +b 1 *p 2; q 2 =A 2-a 2 *p 2 +b 2 *p 1; The above figure presents the best response functions of the ...
Profit maximization using the total revenue and total cost curves of a perfect competitor. To obtain the profit maximizing output quantity, we start by recognizing that profit is equal to total revenue minus total cost (). Given a table of costs and revenues at each quantity, we can either compute equations or plot the data directly on a graph.
Bertrand competition is a model of competition used in economics, named after Joseph Louis François Bertrand (1822–1900). It describes interactions among firms (sellers) that set prices and their customers (buyers) that choose quantities at the prices set.
Classical economic theory assumes that a profit-maximizing producer with some market power (either due to oligopoly or monopolistic competition) will set marginal costs equal to marginal revenue. This idea can be envisioned graphically by the intersection of an upward-sloping marginal cost curve and a downward-sloping marginal revenue curve ...
A monopolist can set a price in excess of costs, making an economic profit. The above diagram shows a monopolist (only one firm in the market) that obtains a (monopoly) economic profit. An oligopoly usually has economic profit also, but operates in a market with more than just one firm (they must share available demand at the market price).
A Cournot duopoly is a model of strategic interaction between two firms where they simultaneously choose their output levels, assuming the rival's output level is fixed. The firms compete on quantity, and each firm attempts to maximize its profit given the other firm's output level.