Unit 6 Assignment: Monopolistic Competition Profit Maximization and Oligopoly Strategies

In this assignment, you will be assessed on the following Outcome:

MT445-3: Analyze the production decision in profit maximization for the four primary market structures.

In this assignment, you will compute total cost, total revenue, and total profit/loss. Based on the computed results, you will determine the optimal quantity of output, which minimizes loss under a monopolistically competitive market. In addition, you will also evaluate the marketing strategies of oligopoly market firms.

Instructions: This assignment requires a combination of short paragraph answers and computations. You are required to follow proper APA format. Read the Criteria section below for more information before you begin this assignment.

  1. Do the firms in an oligopoly act independently or interdependently? Explain your answer
  2. A perfectly competitive firm has the following fixed and variable costs in the short-run. The market price for the firm’s product is $140.

    Output                  FC                   VC               TC             TR     Profit/Loss

      0                      $80                   $0              ___           ___           ___

      1                        80                   90              ___           ___           ___

      2                        80                170               ___           ___           ___

      3                        80                290               ___           ___           ___

      4                        80                430               ___           ___           ___

      5                        80                590               ___           ___           ___

      6                        80                770               ___           ___           ___

 

    1. Complete the table.
    2. What level of output should the firm produce to maximize profits?
    3. Assume this firm is making a loss when it produces its 7th unit of output. What should the firm do in the short-run? Should it operate at loss or shutdown in the short-run?
  1. A monopolistically competitive firm has the following demand and cost structure in the short-run.

 

              Output          Price             FC               VC             TC               TR           Profit/Loss

                     0                $90             $30              $0            ____           ____           ________

                     1                  80            ____             40            ____           ____           ________

                     2                  70            ____             80            ____           ____           ________

                     3                  60            ____           140            ____           ____           ________

                     4                  50            ____           220            ____           ____           ________

                     5                  40            ____           320            ____           ____           ________

                     6                  30            ____           440            ____           ____           ________

                     7                  20            ____           580            ____           ____           ________

    1. Complete the table.
    2. What level of output maximizes profit or minimizes loss?
    3. Should this firm operate or shut down in the short-run? Why?
  1. Suppose that Wal-World and Tarbo are independently deciding whether to implement a new bar code technology or use the existing bar code. It is less costly for their suppliers to use one system and the following payoff matrix shows the profits per year for each company resulting from the interaction of their strategies.


(Description of the graph: The payoff matrix shows two oligopoly companies: Wal-World and Tarbo, which are competing to increase their market share and payoffs. They have two strategies, which are playing existing bar code and new bar code. The two companies get different payoffs when they play different strategies.)

    1. Does Wal-World have a dominant strategy? Briefly explain.
    2. Does Tarbo have a dominant strategy? Briefly explain.
    3. Is there a Nash Equilibrium in this game? Briefly explain.

Criteria

  • This assignment should be completed in the Word template provided under Course Documents.
  • It should be written in Standard English and demonstrate exceptional content, organization, style, and grammar and mechanics.
  • Respond to the questions in a thorough manner, providing specific examples where asked.
  • Add references in APA format as a separate page at the end of your paper.
  • Your sources and content should follow proper APA format (A title page is not required). Review the APA formats found in the Writing Resources accessed through the Academic Success Center within the Academic Tools area of the course.
  • Review the grading rubric to ensure all points have been captured in the paper.

Directions for Submitting your Assignment

Complete your assignment in the Word template provided. Submit your assignment by the end of Unit 6 to the Unit 6 Assignment Dropbox. Make sure to save a copy of your work and be sure to confirm that your file uploaded correctly.