Price-output determination under oligopoly, Managerial Economics

Assignment Help:

(Kinky Demand Curve) Short Period

Kinked demand curve was first used by Prof. Paul M. Sweezy to elucidate price rigidity under oligopoly. In an oligopoly market, firm knows that if it increases price, other firms won't follow; though if price is reduced, other firms will follow price reduction. In some respect, price output analysis in oligopoly is simple. Because every seller wants to avoid uncertainty, each oligopolistic firm will adhere to the point of kink where itis safe and where it can anticipate the reaction of its rivals. Though the firm will neither decrease nor increase price.

2231_PRICE-OUTPUT DETERMINATION UNDER OLIGOPOLY.png

Figure: Kinked Demand Curve

This is a significant consequence of the existence of the kink in demand curve of firm. Since of the vertical section in MR, which is uncertainty range, without affecting the price or level of output. Under these situations, equality between MR and MC won't determine the point of equilibrium. The profits will, though, be determined as in any other market, by difference between AC andAR. With a given marginal cost of production, OP is more about to be the profit-maximising price. Length of the discontinuity portion in MR relies on the relative elasticity of demand at point E of AR. The greater the elasticity of demand of portion of AR above point E and the lower the elasticity of demand of the portion of AR below point discontinuity portion of MR, the bigger will be discontinuity portion of MR. Figure above demonstrates that price is fixed at OP and output is OM.


Related Discussions:- Price-output determination under oligopoly

Determine the market demand curve, Determine the Market demand curve Ma...

Determine the Market demand curve Market demand curve is the horizontal summation of individual demand curves. The individual demand schedules plotted graphically and summed up

Explain what is meant by price discrimination, Problem 1: a) Explain wh...

Problem 1: a) Explain what is meant by ‘price discrimination' and what are the different types of price discrimination. b) Under what conditions is it possible and profitabl

The position of an economic relationship, Using the relationship among the ...

Using the relationship among the price of a visit to a physiotherapist and the quantity of visits demanded, explain and distinguish between the direction, the slope, and the positi

Reasons for fluctuations in agricultural prices, REASONS FOR FLUCTUATIONS I...

REASONS FOR FLUCTUATIONS IN AGRICULTURAL PRICES Production depends on factors beyond the control of the producers e.g. weather, disease and pests.  Actual and planned output i

What is the equilibrium in the labor market, What is the equilibrium in the...

What is the equilibrium in the labor market? Explain briefly. Equilibrium in the Labor Market a. The market labor of demand curve is the horizontal total of the individual l

Explain cost output relationship, Explain cost output relationship with ref...

Explain cost output relationship with reference to: a.    Total fixed cost and output b.    Total variable cost  and output

Factors affecting long run trend of terms of trade, Factors affecting the l...

Factors affecting the long run trend of the Terms of Trade for developing countries Most Third World countries have been faced by a fall in their terms of trade over the long

Generate a computer code for solidification situation, Generate a computer ...

Generate a computer code to simulate the following solidification situation during a casting process: The material is a well-known polymer known as PEEK (polyetheretherketo

What is monopoly, Q. What is Monopoly? The term 'Monopoly' has been der...

Q. What is Monopoly? The term 'Monopoly' has been derivative of Greek term 'Monopolies' that means a single seller. So, monopoly is a market condition in that there is a single

Individual firm and market supply curves, Individual firm and market supply...

Individual firm and market supply curves The quantities and prices in the supply schedule can be plotted on a graph. Such a graph is called the firm supply curve. A fir

Write Your Message!

Captcha
Free Assignment Quote

Assured A++ Grade

Get guaranteed satisfaction & time on delivery in every assignment order you paid with us! We ensure premium quality solution document along with free turntin report!

All rights reserved! Copyrights ©2019-2020 ExpertsMind IT Educational Pvt Ltd