Question

Every end-of-chapter problem addresses at least one learning objective. Following is a non exhaustive sample of end-of-chapter problems for each learning objective.

LO1 Explain how beliefs and strategic interaction shape optimal decisions in oligopoly environments.

Short answer

Different models have different assumptions that shape optimal price and output decisions.

Step-by-step solution

Introduction

In the case of oligopoly markets, there are various approaches to find a determinate solution. Different economists provide different views on optimal situation.

 Step 2: Explanation for beliefs and strategic interaction shape optimal decisions in oligopoly environments.

Some economists assume that companies are ignoring the interdependence between them. Therefore, you can determine the demand curve. Therefore, you can determine a specific price and performance solution. Classic models of Cournot and Bertrand fall into this category.

The model is also based on reaction patterns and recoil predictions by competitors. Chamberlin provided the theory of joint profit maximization by duopolists. Sweezy's twisted demand curve to explain price and volume stiffness is also based on the assumption of predicting response patterns.

In another case, companies maximize mutual benefits and form collusions to share agreed markets, profits, and production.

In a game-theoretic approach, a company calculates the movements of another company's rivals before making any decision.

Therefore, different models have different assumptions that shape optimal price and production.