Reference no: EM131699564

During the 1980's, most of the world's supply of lysine was produced by a Japanese company named Ajinomoto. Lysine is an essential amino acid that is an important live-stock feed component - more than 30,000 tons- to use in livestock feed at a price of $1.65 per pound. The worldwide market for lysine however, fundamentally changed in 1991 when U.S. based Archer Daniels Midland (ADM) began producing lysine - a move that doubled worldwide production capacity. Experts conjectured that Ajinomoto and ADM had similar cost structures and that the marginal cost of producing an distributing lysine was approximately $0.7 per pound. Despite ADM's entry into the lysine market, suppose demand remained constant at Q=208-80P (in millions of pounds). Shortly after ADM began producing lysine, the worldwide price dropped to $0.70. By 1993, however, the price of lysine shot back up to $1.65. 

Considering the following theories below, provide a potential explanation for what happened in the lysine market.

• Oligopoly
• Sweezy Oligopoly
• Cournot Oligopoly
• Best-Response Function
• Cournot Equilibrium
• Isoprofit Curve
• Stackelberg Oligopoly
• Bertrand Oligopoly
• Cournot Duopoly
• Stackelberg Duopoly
• Collusive Duopoly

Substantiate the answer with calculations whenever possible.