You Are the Manager of a Firm Operating in a Differentiated-Product

question 78

Essay

You are the manager of a firm operating in a differentiated-product oligopoly.Show graphically your optimal response to an increase in marginal cost if
a.You believe rivals will follow price reductions but not price increases.
b.You believe rivals will hold output constant if you decrease output.
c.You believe rivals will follow price increases but not price decreases.
B.Thus, the manager of firm one should reduce output to maximize profits.
Figure 9-3b
c.In this case, the demand curve is ABC in Figure 9-3c, while MR is ADEF.An increase in marginal cost from MC to MC* leads to a reduction in the profit-maximizing level of output.
Figure 9-3c

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