Joe has a monopoly of tea he sells 25 glasses of tea for 1 each If he wants to

# Joe has a monopoly of tea he sells 25 glasses of tea

This preview shows page 15 - 16 out of 16 pages.

Joe has a monopoly of tea, he sells 25 glasses of tea for \$1 each, If he wants to sell 26 glasses, Joe can only charge \$.97 per glass. What is the Marginal Revenue on the 26thglass of tea sold?a.i) First determine total revenue for 25 glasses and 26 glasses, and then determine the difference between the two. (a.i.1)P1: 25 x \$1.00 = \$25.00(a.i.2)P2: 26 x \$.97 = 25.22(a.i.3)P2- P1 = MR(a.i.4)25.22 – 25.00 = \$.22(a.i.5)MR on the 26thglass is \$.22146)Oligopoly Characteristics(a.i.1)Product Branding(a.i.2)Entry Barriers – anything that makes it difficult to enter the market(a.i.2.a)Ex: other brands, patents, copyrights, trademarks, and cost(a.i.3)Interdependent decision Making (most important characteristic of oligopoly) (a.i.3.a)If one Cell phone company lowers prices the other must, price wars do not lead to increased demand, they lead to decreased revenue for each firm. (a.i.3.b)For interdependent decision making to be effective the number of firms in the oligopoly must be small(a.i.3.c)This firms are the price makers and must strategically consider the reactions of the other firms in the market(a.i.4)Non-price competition – by providing higher quality products or characteristics(a.i.4.a)Ex: warranties, return-policy, store hours, things that match the consumers preferences(a.i.4.a.i)In the USA a current oligopoly is the Cell Phone industrya.i.4.a.i.1.Dominated by a few interdependent producersa.i.4.a.i.2.Very difficult to enter the marketa.ii)When 5 or less make up 60% of a market, it is considered an oligopoly147)Kinked Oligopoly Demand Curve – when competing firms follow price decreases but not price increasesa)Assumptions made regarding the kinked demand curve:(a.i.1)If one firm raises its price, competition likely will not raise their prices in fear of losing market share(a.i.2)If a firm lowers its price, competitors will follow, so they do not lose market shareb)Things to remember
(b.i.1)The firms Marginal Revenue (MR) has a gap at the kink 2 (b.i.2)Prices above the current price are relatively elastic(b.i.3)Prices below the current price are relatively inelastic148)Federal Trade Commission (FTC) works with the Justice Department to protect free tradea)FTC handles civil actions b)U.S. Justice Department can handle civil and criminal actionsb.i)They have the power to:(b.i.1)Break up firms(b.i.2)Discourage through taxation(b.i.3)Price floor(b.i.4)Price ceilings(b.i.5)Prevent mergersb.ii)Granted these powers through the Sherman Actc)Can exercise power through:c.i) Advising – counsel regarding legalityc.ii)Consent decrees – FTC agrees not to fine a business if they ceasec.iii)Cease and Desist Orders – tells a business to stop breaking laws or face finesc.iv)Extreme Measures – order a business to sell off assets or dissolve itself149)Federal Trade Commission Act of 1914a)Outlawed a.i) unfair or deceptive business practicesa.ii)Unfair methods of competitionb)Created a commission to investigate and enforce150)Competition causes firms to be efficient151)Perfect Competition markets have:(a.i.1)

#### You've reached the end of your free preview.

Want to read all 16 pages?

• Winter '12
• None
Stuck? We have tutors online 24/7 who can help you get unstuck.
Ask Expert Tutors You can ask You can ask You can ask (will expire )
Answers in as fast as 15 minutes