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week 5 ECON 294 Monopolistically Competitive and Oligopolistic Product Markets

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Question;Week 5 Discussion;Monopolistically Competitive and Oligopolistic Product Markets;John;Nash;Oligopoly or Monopolistic Competition, and that means Team;Work Again! You are asked to collude.You are;asked to collaborate with at least one other classmate and that meansYour Study Group. Your Group needs to;choose to post a thread for one of the two models below (Oligopoly or;Monopolistic Competition).;Note: No need for your team to post in both, but it is;necessary that you respond to your fellow classmates;selections!;Option #1: If You Choose an Oligopoly.;How would a rational businessperson formulate production and;pricing strategies in an oligopolistic market?;Review the key characteristics of oligopolistic markets in your;text and the expected outcomes for the various situations described. You;may find a payoff matrix helpful in understanding the mutual interdependence;between producers in an oligopoly. John Nash (as played by Russell Crowe;inA;Beautiful Mind) certainly did.;Think about some real world markets which come close to the;Oligopoly characteristics. Finally, what are the implications for efficiency;and equity? You should note how price/cost margins in the long run equilibrium;situations for these markets. Is price equal to average cost? If so, neither;producer or consumer is unfairly ripped off. Is price equal to minimum average;cost? If so then the engineers must be happy as there is no other output level;yielding higher productivity and lower cost and we have productive efficiency.;Is price equal to marginal cost? If so then there is no reallocation of;resources which would make society better off and we have allocative;efficiency. Alternatively, a given market is unfair to consumers if price is;greater than marginal cost, productivity inefficient if price is greater than;minimum average cost, and allocatively inefficient if price is greater than;marginal cost since we value more of the good in question than other goods that;are currently being produced with the same resources. Think about these things;(characteristics of oligopoly, resulting behavior by business decisionmakers;consequent price/cost margins, and implications for efficiency and equity).;Option #2: If you Choose a Monopolistic Competition;Market.;How would a rational businessperson formulate production and;pricing strategies in a monopolistically competitive market?;Review the key characteristics of monopolistically competitive;markets in your text and the expected outcomes for the various situations illustrated;above. Think about real world products and services which come close to those;characteristics. In fact, you will find that most of what you probably buy on a;daily basis are monopolistically competitive products.You should note how;price/cost margins in the long run equilibrium situations for these markets. Is;price equal to average cost? If so, neither producer or consumer is unfairly;ripped off. Is price equal to minimum average cost? If so, then the engineers;must be happy as there is no other output level yielding higher productivity;and lower cost and we have productive efficiency.Is price equal to marginal;cost? If so, then there is no reallocation of resources which would make;society better off and we have allocative efficiency. Alternatively, a given;market is unfair to consumers if price is greater than marginal cost;productivity inefficient if price is greater than minimum average cost, and;allocatively inefficient if price is greater than marginal cost since we value;more of the good in question than other goods that are currently being produced;with the same resources.;Here's what I would like you to do;1.;As a TEAM,identify a market that your team believe is;oligopolistic" or "monopolistic competition.;Your text can help you with this. You can NOT pick a product that;was selected last week or this week by yourself, classmate or another team;(well not if you want credit for it anyways).;2.;Tell us why the market you selected meets the criteria of an;oligopoly or monopolistic competition. Then tell us what that means for;rational business price and production decisions.;3.;Evaluate the result in (2) from perspectives of efficiency and;equity drawing upon price/cost margins for your explanation. Click on the;highlighted terms above if you are unclear on this.You may want to also;consider issues involving the stability of collusive cartels. Please start;with your assigned study teams. If you find yourself solo after Tuesday;midnight (C.S.T.) because of team inactivity, you may join with another solo;classmate.As always, you will profit by reading and responding to your fellow;budding economists' postings.;Due Date Reminder

 

Paper#55814 | Written in 18-Jul-2015

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