Alpha Beta Corporation ABC) Operates in a Non-Collusive Oligopolistic Market

question 5

Essay

Alpha Beta Corporation ABC) operates in a non-collusive oligopolistic market where firms tend to base their strategies on good old fashioned fear. ABC believes that at its current price its demand curve will be:
Q = 1150 - 50P
if it raised prices, since it expects that other firms will not follow a price increase. However, for price cuts, it believes its demand curve is:
Q' = 250 - 10P
since other firms are expected to follow a reduction in price.
a. With the above assumptions, what are ABC's current price and quantity sold?
b. Suppose that ABC's total cost function is:
STC = 50 + 5Q + .1Q² + .004Q³
Is ABC maximizing its profit at the quantity and price you found in part a? Explain why or why not. If not at what quantity and price is profit maximized. NOTE - Round fractional units of production UP to the next highest whole unit - Round price to dollars and cents)
c. Now suppose that ABC has made an error in the estimate of the total cost function so that the actual total cost function is:
STC = 50 + 5Q + .17Q² + .004Q³
Is ABC maximizing its profit at the quantity and price you found in part a? Explain why or why not. If not at what quantity and price is profit maximized. NOTE - Round fractional units of production UP to the next highest whole unit - Round price to dollars and cents)
d. Now suppose that ABC has made an another error in the estimate of the total cost function so that the actual total cost function is:
STC = 60 + 5Q + .25Q² + .004Q³
Is ABC maximizing its profit at the quantity and price you found in part a? Explain why or why not. If not at what quantity and price is profit maximized. NOTE - Round fractional units of production UP to the next highest whole unit - Round price to dollars and cents)

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Definitions:

Antitrust Risks

The risks associated with violating laws designed to promote competition and prevent monopolies.

Vertical Integration

The combination of two or more stages of production or distribution managed by a single company to increase control and reduce costs along the supply chain.

Horizontal Integration

A business growth strategy through acquiring or merging with competitors in the same industry at the same stage of production.

Horizontal Contracts

Agreements or cooperations between businesses that operate at the same level in the supply chain, often for mutual benefit or to reduce competition.