Transcript Managerial Economics in a Global Economy

Managerial Economics in a
Global Economy
Oligopoly
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Oligopoly
Few sellers of a product
Nonprice competition
Barriers to entry
Duopoly - Two sellers
Pure oligopoly - Homogeneous product
Differentiated oligopoly - Differentiated
product
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Sources of Oligopoly
Economies of scale
Large capital investment required
Patented production processes
Brand loyalty
Control of a raw material or resource
Government franchise
Limit pricing PowerPoint Slides Prepared by
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Measures of Oligopoly
Concentration Ratios
4, 8, or 12 largest firms in an industry
Herfindahl Index (H)
H = Sum of the squared market shares of
all firms in an industry
Theory of Contestable Markets
If entry is absolutely free and exit is
entirely costless then firms will operate as
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if they are perfectly
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Kinked Demand Curve Model
Proposed by Paul Sweezy
If an oligopolist raises price, other firms
will not follow, so demand will be elastic
If an oligopolist lowers price, other
firms will follow, so demand will be
inelastic
Implication is that demand curve will be
kinked, MR will have a discontinuity,
and oligopolists
will not change price
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when marginal
changes
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Kinked Demand Curve Model
P2
P1
MC’
MC
K
P3
0
MC”
Q 2 Q1
Q
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Kinked Demand Curve Model
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Cartels
Collusion
Cooperation among firms to restrict
competition in order to increase profits
Market-Sharing Cartel
Collusion to divide up markets
Centralized Cartel
Formal agreement among member firms to
set a monopoly price and restrict output
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Incentive toRobert
cheat
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Centralized Cartel
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Kartel yang terdiri atas 2 perusahaan mengahadapi fungsi
permintaan sbb:
Q = 120 – 10P, atau P = 12 – 0.1Q
Fungsi biaya masing-masing perusahaan adalah:
TC1 = 4Q1 + 0.1Q12
TC2 = 2Q2 + 0.1 Q22.
a. Tentukan harga monopolinya.
B. Berapa Q yang harus dproduksi oleh masing-masing
perusahaan?
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Kartel yang terdiri atas 2 perusahaan mengahadapi fungsi
permintaan sbb:
Q = 120 – 10P, atau P = 12 – 0.1Q
Fungsi biaya masing-masing perusahaan adalah:
Cari MR, MC1, MC2, ƩMC
TR = PQ = (12-0.1Q)Q= 12Q – 0.1Q2
MR = 12 – 0.2Q
MC1 = 4 + 0.2Q1 Q1= -20 + 5MC1
MC2 = 2 + 0.2Q2 Q2= -10 + 5MC2
ƩMC = MC1 + MC2Q = -30 + 10ƩMC
10ƩMC = 30 + Q
ƩMC = (30 + Q)/10 = 3 + 0.1Q
MR = ƩMC 12 – 0.2Q = 3 + 0.1Q
0.3Q = 9
QPowerPoint
= 9/0.3
=30
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12- 0.1Q
= 12 – 0.1*30 = 9
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MR = 12 – 0.2Q = 12 – 0.2 * 30 = 6
Q1MC1 = MR; 4 + 0.2Q = 60.2Q = 6-4=2Q = 2/0.2=10
Q2MC2 = MR; 2 + 0.2Q = 60.2Q = 6-2=4Q = 4/0.2=20
LABA:
Perusahaan 1.
AC1 = 4 + 0.1Q = 4 +0.1*10 = 4 +1 = 5
TC = AC * Q = 5 *10 = 50
TR = P*Q = 9*10 = 90
Laba = TR – TC = 90 -50 =40
Perusahaan 1.
AC2 = 2 + 0.1Q = 2 + 0.1*20 = 2 + 2 = 4
TC = AC * Q = 4 *20 = 80
TR = P*Q = 9*20 = 180
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Laba = TR – TC = 180
-80
=100
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Price Leadership
Implicit Collusion
Price Leader (Barometric Firm)
Largest, dominant, or lowest cost firm in
the industry
Demand curve is defined as the market
demand curve less supply by the followers
Followers
Take market price as given and behave as
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perfect competitors
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Price Leadership
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Harmful Effects of Oligopoly
Price is usually greater then long-run
average cost (LAC)
Quantity produced usually does
correspond to minimum LAC
Price is usually greater than long-run
marginal cost (LMC)
When a differentiated product is
produced, too much may be spent on
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advertising and
model
changes
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Sales Maximization Model
Proposed by William Baumol
Managers seek to maximize sales, after
ensuring that an adequate rate of
return has been earned, rather than to
maximize profits
Sales (or total revenue, TR) will be at a
maximum when the firm produces a
quantity that sets marginal revenue
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(MR
=Ph.D.0)Copyright
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Sales Maximization Model
MR = 0
where
Q = 50
MR = MC
where
Q = 40
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