De Anza College Economic Problems and Monopolistic Market Discussion

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Economics

De Anza College

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1.1 The four different types of market structure based on their dimensions are perfect
competition, monopoly, oligopoly, and monopolistic market. The dimensions are nature of
commodity sold, number of sellers in the market, entry barriers and how close substitutes the
goods are to each other.

1.2 Oligopoly market exists where only few firms are there in market. Each firm keeps the
larger share of market. Cable TV, and Airlines are examples of oligopoly market.

1.3 Following are three models of oligopoly Market:
I.

Cournot Model.

II.

Bertrand Model

III.

Dominant firm model.

IV.

Stackelberg Model.

1.4 A firm would like to be a monopoly to maximize profits in the long run. But depending
on the market structure if there is dependency between products demand then oligopoly is
preferred.
1.5 A consumer will prefer to be in a perfect competition market, because there is no
exploitation in the market, and both consumer and producer get benefits out of it.

Two departments sell degree of economics in a market. The marker demand function is:
𝑄 = 7200 − 2𝑃
𝑝=

7200 − 𝑄
𝑄
= 3600 −
2
2

Here, 𝑄 = 𝑞1 + 𝑞2
The marginal cost is $3,000 per degree.
2.1 The residual demand curve is the market demand curve minus quantity supplied by other
firms.
Residual curve for department 1 (Econ)
𝑞1 = 7200 − 2𝑝 − 𝑞2
Residual demand curve for department 2 (Man. Econ)
𝑞2 = 7200 − 2𝑝 − 𝑞1

2.2 To find the best response for two firms, determine the profit function of each firm and
derivate the function. The profit for department 1 is:
𝜋 = 𝑝𝑞1 − 𝑐𝑞1

1
1
𝜋 = 3600𝑞1 − 𝑞12 − 𝑞1 𝑞2 − 3000𝑞1
2
2
Derivate the above profit function with respect to 𝑞1 and find the best response for firm 1 as
follows:
𝜕𝜋
1
= 3600 − 𝑞1 − 𝑞2 − 3000
𝜕𝑞1
2
1
0 = 600 − 𝑞1 − 𝑞2
2
1
𝑞1 = 600 − 𝑞2
2
1

Here, the best response function for department 1 is 𝑞1 = 600 − 2 𝑞2 .
The profit for department 2 is:
𝜋 = 𝑝𝑞1 − 𝑐𝑞1
1
1
𝜋 = 3600𝑞2 − 𝑞1 𝑞2 − 𝑞22 − 3000𝑞2
2
2
Deriva...


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