MBA Programme 2007 Period 1 – Jan/Feb PRICES AND MARKETS Core Course PUSHAN DUTT Date: 5th March‚ 2007 Time: 9am – 12noon Duration of the exam: 3 hours Closed-book exam (two A4 sheets allowed). You may NOT use a computer or a PDA Your answers must be in English Write all answers in a separate booklet‚ not on this question paper. At the end of the exam you can find blank pages as “scratch paper” for calculations. This exam is worth 200 points (you get an endowment of 5 points for showing up)
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and profits are "indeterminate." That is‚ they may be anything within the range‚ and are unpredictable. Applying Game Theory to Oligopoly Price Competition (Bertrand) Location (Differentiation) : Hotelling Capacity Competition : Simultaneous (Cournot) Capacity Competition : Sequential (Stackleberg) The Setting Key Assumptions: 2 Firms Same Marginal Cost Homogeneous product Price Competition Bertrand model Sellers with unlimited capacity compete on price Suppose one of the two firms
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are Cournot model and Bertrand model. Cournot model is based on two basic assumptions. 1. Firms compete with quantity‚ not the price. 2. Conjectural variation of the firms is zero i.e. firms assume when it changes quantity other firm will keep its output unchanged. In other words firm will derive its optimising strategy on the assumption of a given behaviour of the other firm. Bertrand model also assumes zero conjectural variation but it considers price competition‚ not quantity. Cournot model
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incumbents especially that firms management usually they repeat their type over and over again especially when it succeeds. Reaction functions: When the new entrant will enter the market‚ the reaction from the incumbents will be either passive (Cournot model) to balance the quantity in the market‚ i.e. to adjust
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Cooperative or Non-Cooperative Behavior of OPEC Is OPEC a classic example of an effective cartel?? What happens to world oil prices when OPEC practices cooperation?? Organization of Petrol Exporting Countries(OPEC) • Inter-governmental organization formed in 1960 by Iraq‚ Iran‚ Kuwait‚ Saudi Arabia and Venezuela • Currently has 12 members including Qatar Socialist People’s Libyan Arab Jamahiriya ‚the United Arab Emirates ‚ Algeria ‚ Nigeria ‚ and Angola . Objectives of OPEC To formulate
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Definition * Oligopolistic competition * Characteristics of Oligopoly * Similarities & Differences between Monopoly & Oligopoly * Effects of Oligopolistic Competition * Models Defining Oligopoly * Dominant Firm Model * Cournot – nash Model * Bertrand Model * Kinked Demand Curve * Game Theory * Price and Non – Price Competition * Price Leadership * Worldwide examples of Oligopoly * Australia * Canada * United Kingdom * United States
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firms is producing 12.1.2 Competitive market solution. Due to symmetry‚ each of the firms is producing 12.1.3 Cournot solution. Firstly‚ treat Shell’s quantity as given: (12.) For Caltex to maximize its profit‚ the FOC requires: (12.) Secondly‚ treat Caltex’s quantity as given: For Shell to maximize its profit‚ the FOC requires: (12.) The Cournot-Nash equilibrium is given as: Market output ‚ market price ‚ and firms’ profits are: 12.1.4 Bertrand solution. 12
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Review of the Boeing VS Airbus Case Study Introduction In the market for large aircraft demand the emerging niche for very large aircraft (VLCT aircraft seating more than 400 passengers) saw only two competitors: Boeing and Airbus. Even though both competitors’ moves were clearly marked by technology enhancements‚ and different target markets but both exhibited strategic interdependence. Option with Boeing: Boeing being the market leader for almost a decade as a manufacturer of large
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Perfect Competition: 1. Same product + No barriers to entry + No NPCF easy to switch. 2. Increase P slightly above market P‚ no sales demand is perfectly elastic. 3. D curve is horizontal at the P determined by the intersection of market S&D curves Profit Maximzing decision 1. Since MR=MC 2. Set P (price) = MC 3. MR curve = Demand curve 4. Firms can sell all they want at this market price Q* is the profit maximizing level of output. 1.For output < Q*‚ P < MC. Increase output
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Mock Final Examination Managerial Economics Prof. Volker Hoffmann Prof. Thomas Rutherford Florian Landis February 10‚ 2012 N.B. Mock questions related to Professor Hoffmann’s case studies are not included here. 1 Multiple Choice Note the one correct answer on your answer sheet. 1. Which of the following statements is most likely true regarding economic and accounting profits? A. Economic profits minus accounting profits generally equal zero. B. Economic profits plus accounting profits generally
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