ch17checkpoint - CHECKPOINT 17.1 Practice Problem 1 What...

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Practice Problem 1 What are the distinguishing features of oligopoly? CHECKPOINT 17.1
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Solution The distinguishing features of oligopoly are a small number of interdependent firms competing behind natural or legal barriers to entry. CHECKPOINT 17.1
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Practice Problem 2 Why are breakfast cereals made by firms in oligopoly? Why isn’t there monopolistic competition in that industry? CHECKPOINT 17.1
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Solution Breakfast cereals are made by firms in oligopoly because economies of scale and demand limit the number of firms that can make a profit in that market. CHECKPOINT 17.1
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Practice Problem 3 Sparks fly for Energizer Energizer is gaining market share against competitor Duracell and its profit is rising despite the sharp rise in the price of zinc, a key battery ingredient. Source: www.businessweek.com, August 2007 In what type of market are batteries sold? Explain your answer. CHECKPOINT 17.1
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Solution The market for batteries is an oligopoly, and with two dominant firms, it is a duopoly. The number of firms is small, their actions are interdependent, and economies of scale and the market demand create a natural barrier to entry. CHECKPOINT 17.1
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Practice Problem 1 Isolated Island has two natural gas wells, one owned by Tom and the other owned by Jerry. The marginal cost of producing gas is zero. What will be the price of gas and the quantity produced if Tom and Jerry form a cartel and maximize their joint CHECKPOINT 17.2 The demand schedule for gas on this island.
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Solution If Tom and Jerry form a cartel and maximize their joint profit, they will charge the monopoly price. This price is the highest price the market will bear when together they produce the quantity at which marginal revenue equals marginal cost. CHECKPOINT 17.2
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Marginal cost is zero, so we need to find the price at which marginal revenue is zero. Marginal revenue is zero when total revenue is a maximum, which occurs when output is 6 units a day. The maximum price at which they can sell 6 units a day is $6 a unit. CHECKPOINT 17.2
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The maximum price at which they can sell 6 units a day is $6 a unit. CHECKPOINT 17.2
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Practice Problem 2 Isolated Island has two natural gas wells, one owned by Tom and the other owned by Jerry. The marginal cost of
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This note was uploaded on 04/03/2011 for the course ECON 201 taught by Professor Kan during the Spring '11 term at University of Regina.

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ch17checkpoint - CHECKPOINT 17.1 Practice Problem 1 What...

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