Market Structure and Game Theory

In: Business and Management

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Given the demand curve in the following graph, find (and label) the monopolist’s profit-maximizing output and price. In this graph the monopolist’s profit-maximizing output is equal 3 and the monopolist’s profit-maximizing price is equal 8.

2. Show graphically an example of a monopolist that is producing the profit-maximizing output, but is not making a profit. The monopolist loss when the Average Total Cost exceeds the price that the monopolist can charge at the profit maximizing level of output.

3. Suppose the demand curve for a monopolist is Qd= 500-P, and the marginal revenue function is MR= 500-2Q. The monopolist has a constant marginal and average total cost of $50.00 per unit.

a. Find the monopolist’s profit-maximizing output and price.

Qd= 500-P MR =500-2Q ATC= 50 MC=50

MR = MC Qd= 500 - P
500- 2Q = 50 225 = 500 – P
-2 Q = 50 -500 = -450 - P= 225-500 = -275
Q= -450/-2 = 225 P= 275

The monopolist’s profit-maximizing output is 225, and the monopolist’s profit-maximizing price is 275.

b. Calculate the monopolist’s profit.

PR = TR – TC = (P * Q) – TC = ( 225 * 275 ) – ( 225 * 50) = 50625

The monopolist profit is 50625

c. What is the Lerner Index for this Industry?

L = ( P – MC ) / P = 275- 50 / 275 = 0.82

2. a. Define the term: Dominant Strategy.

Dominant Strategy is the strategy that result in the best outcome to given company in the Industry, no matter what action or choice the other company makes.

b. Define the term: Nash equilibrium.

Nash equilibrium is the strategy that managers choose that is the best for them, given the assumption that their competitors will choose its best strategy.

Monopolistically Competitive Industry


This “paper” has been prepared to select a product that operates within a monopolistically…...

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