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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 ...
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.
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.
Suppose there are two firms, we use C for the marginal cost, C1 stands for the marginal cost of firm 1 and C2 stands for the marginal cost of firm 2. From the result, there are two cases: When C1 < C2, Firm 1 can set the price between C1 and C2. C1 = C2 = C; This is the case of the basic Bertrand Competition which both firms have the same ...
A kink in an otherwise linear demand curve. Note how marginal costs can fluctuate between MC1 and MC3 without the equilibrium quantity or price changing. The Kinked-Demand curve theory is an economic theory regarding oligopoly and monopolistic competition. Kinked demand was an initial attempt to explain sticky prices.
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.
In oligopoly theory, conjectural variation is the belief that one firm has an idea about the way its competitors may react if it varies its output or price. The firm forms a conjecture about the variation in the other firm's output that will accompany any change in its own output.
The firm in a perfectly competitive market will operate in two economic time horizons; the short-run and long-run. In the short-run the firm adjusts its quantity produced according to prices and costs. While in the long run the firm is adjusting its methods of production to ensure they produce at a level where marginal cost equals marginal ...