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Econ HW Ch. 11

In this matrix a would mean x and y both selling at

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Unformatted text preview: has few firms in the market. It can either have a standardized or differentiated product. The control over price is limited by mutual interdependence of the firms in an oligopoly, considerable with collusion. There are significant obstacles to enter an oligopolistic market, and there is typically a great dead of nonprice competition; whereas, monopolistic competition emphasizes advertising, brand names, and trademarks. #7. a. A four- firm concentration ratio refers to the percentage of total industry sales accounted for by the four largest firms in an industry. A 60% four- firm concentration ratio means that 60% of the revenue in an industry is from four of the largest firms. The same goes respectively for 90%. With a 40% or more four- firm concentration ratio, that industry is considered oligopolistic. Concentration ratios cannot be used for monopoly power because there is only one firm in a monopoly. b. Herfindahl index = 602 + 252 + 52 + 52 + 52 = 4300. Since the Herfindahl index is not too high nor too low, there is an adequate amount of market power, and hence some but not too much competitiveness. #8. The profit payoff matrix shows four possible combinations of prices for firms X and Y. Each lettered cell represents each combination. Each cell shows the payoff (profit) to each firm that would result from each combination of strategies. In this matrix, A would mean X and Y both selling at $40 and that would result with both making a profit – X will make $57 and Y $50. ($ = thousands)...
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