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. Answer all of the following questions in this document. 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 ___ ___ ___
a. Complete the table.
b. What level of output should the firm produce to maximize profits?
c. 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?
3. 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 ____ ____ ________
a. Complete the table.
b. What level of output maximizes profit or minimizes loss?
c. Should this firm operate or shut down in the short-run? Why?
4. 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.)
a. Does Wal-World have a dominant strategy? Briefly explain.
b. Does Tarbo have a dominant strategy? Briefly explain.
c. Is there a Nash Equilibrium in this game? Briefly explain.
References (add references in APA format below)
• This Assignment should be completed in this Word document.
• 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.
• 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.