Analyzing Oligopoly and Monopoly Market Structures - Economics

This economics assignment explores the fundamentals of oligopoly and monopoly market structures. It begins by analyzing a perfectly competitive market, calculating equilibrium price and quantity, and determining consumer and producer surplus. The assignment then shifts to a monopoly scenario, deriving the inverse demand and marginal revenue curves, determining the monopolist's price and quantity, and calculating consumer surplus, producer surplus, and deadweight loss. Furthermore, the assignment delves into Cournot competition, deriving profit and response functions for two firms and determining equilibrium quantities and prices. It also explores the implications of collusion and calculates deadweight loss in both collusive and non-collusive scenarios. Finally, the assignment touches upon structuralism, the Chicago School of thought and its contribution to antitrust policy, and contrasts Cournot and Bertrand models in oligopoly markets, and concludes with a discussion of market power and its impact on economic welfare, referencing relevant literature.

Running head: BASICS OF OLIGOPOLY AND MONOPOLY
Basics of Oligopoly and Monopoly
Name of the Student:
Name of the University:
Author Note:

1BASICS OF OLIGOPOLY AND MONOPOLY
Table of Contents
Answer to Question 3.A.............................................................................................................2
Answer to Question 3.B.............................................................................................................2
Answer to Question 3.C.............................................................................................................2
Answer to Question 4.A.............................................................................................................2
Answer to Question 4.B.............................................................................................................3
Answer to Question 4.C.............................................................................................................3
Answer to Question 4.D.............................................................................................................4
Answer to Question 5.A.............................................................................................................4
Answer to Question 5.B.............................................................................................................4
Answer to Question 5.C.............................................................................................................4
Answer to Question 5.D.............................................................................................................5
Answer to Question 5.E.............................................................................................................5
Answer to Question 6.................................................................................................................5
Answer to Question 7.................................................................................................................6
Answer to Question 8.................................................................................................................7
Reference....................................................................................................................................8

2BASICS OF OLIGOPOLY AND MONOPOLY
Answer to Question 3.A
All the firms are identical as their production and per unit price is same. This is the
main feature of perfect competition.
Answer to Question 3.B
Demand function: Q=70−P
Supply function: Q=−20+4 P
Equilibrium is when demand is equals to supply. Hence,
70−P=−20+ 4 P
5 P=90
P=18
Q=−20+4∗18
Q=−20+72=52
Hence, equilibrium price is 18 and quantity is 52.
Answer to Question 3.C
Producers surplus = 1
2∗52∗( 18− (−20 ) ) =988
Consumers surplus= 1
2∗52∗( 70−18 ) =1352
At equilibrium price and quantity the total surplus is maximised. Hence, the market is
I equilibrium when PS is 988 unit and CS is 1352 unit.
Answer to Question 4.A
Demand Function: Q=100−P

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Inverse Demand function: P=100−Q
Total revenue: TR=QP=100Q−Q2
Marginal revenue: MR= d ( TR )
dQ =100−2 Q
Answer to Question 4.B
Monopoly is in equilibrium when MR=MC
Marginal revenue: MR= d ( TR )
dQ =100−2 Q
Marginal Cost: 5
Equilibrium: 100−2Q=5
Hence, equilibrium quantity: Q= 95
2 =47.5
Equilibrium price: P=100−47.5=52.5

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Answer to Question 4.C
Consumers surplus= 1
2∗47.5∗( 100−52.5 )=1128.125
Producers Surplus= ¿
Deadweight loss= 1
2∗(95−47.5)∗( 52.5−5 ) =1128.125
The total surplus is not optimised as there is a deadweight loss.
Answer to Question 4.D
MR is greater than zero hence, the monopoly market is operating in the elastic portion
of the demand curve.
Answer to Question 5.A
M R A=1000−10 qA −5 qB
T RA =1000 q A−5 q A
2 −5 qA qB
π A =1000 qA −5 qA
2 −5 q A qB−10 qA
Profit function of A: π A =990 qA −5 q A
2 −5 q A qB
M RB=1000−10 qB−5 q A
T RA =1000 qB−5 qB
2 −5 qA qB
π A =1000 qB −5 qB
2 −5 q A qB−10 qB
Profit function of B: πB =990 qB−5 qB
2 −5 qA qB
Answer to Question 5.B
Response function of A: 990−10 qA −5 qB=0

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Response function of B: 990−10 qB−5 q A=0
Answer to Question 5.C
Solving both response functions provides the equilibrium quartiles.
990−1980+20 qB−5 qB =0
Hence, qB =66
Therefore,990−10 qA −5∗66=0; q A=66
The price in the market, P=1000−5 ( 66+66 ) =340
Answer to Question 5.D
If they collude,
q A= 1000−10
2∗5 = 990
10 =99
qB =1000−10
2∗5 = 990
10 =99
Price P, P=1000−5 ( 99+99 )=10
Answer to Question 5.E
Deadweight loss in C): 1
2∗( 340−10 )∗( 198−66 )=21780
Deadweight loss in D): 1
2∗( 10−10 )∗( 198−99 )=0
The larger amount of deadweight loss is found in the case where the firms do not collude. As
the price is high for low amount of quantity and when the firms collude they behave like a
competitive market.

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Answer to Question 6
Structuralism has four major general idea and these are mentioned below:
1) Every system is structured.
2) This structure defines the rank of every element of a complete system.
3) The laws of structure take care of the coexistence not the changes in the system.
4) The structural things are realistic which lies close to the true meaning.
The Chicago School of thought is the neoclassical economic school of thought founded in
1930. The main tenets are as follows:
1. The free market is best in allocating the resources in the economy.
2. There should be no government intervention in order to maintain the economic
prosperity.
3. The money supply should be in equilibrium with respect to the demand for money.
4. There is a crucial assumption which is the rational expectation concept.
There is limited contribution of Post-Chicago school to the antitrust policy and practice.
The contribution of Post-Chicago school to the antitrust harm with the relevant new theories
are not acknowledged by the Chicago School (Bradford, Chilton & Maria Lancieri, 2019).
For example, RRC and leverage theories for complementary goods are the major support
from Post Chicago School which are not accepted by the Chicago school as these are not
empirically significant. There is no sharing or agreeing on the view related to numerous
aspects of appropriate doctrine form the Chicago School (Bougette, Deschamps & Marty,
2015).

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Answer to Question 7
In oligopoly market there is few number of sellers for the whole market. This
provides power to the firms to have an impact on the quantity and price of the products and
services. There are mainly two models which explains the monopolistic completion:
1. Cournot Model
2. Bertrand Competition
Cournot duopoly refers to the industry structure and they choose a certain amount to
produce simultaneously. They are independent to each other in choosing the amount of
production. This leads market towards the inefficient equilibrium (Melkonyan, Zeitoun &
Chater, 2017). Bertrand Competition refers to the industry where the producers choose the
price simultaneously. They are independent to each other while choosing price at which they
sell their goods and services in the market (Chan, & Sircar, 2015). This type of market
structure leads the market towards the efficient equilibrium.
The accuracy of the models depend on the type of industry. The Bertrand model is
better if the output can be easily changed and on the other hand if the adjustment of output
and capacity is difficult then the Cournot model is better.
Answer to Question 8
The market power is nothing but the capability to raise the market price of a product
to raise the profit by dominating the marginal cost of the product (Khan & Vaheesan, 2017).
The downward slopping demand curve and a fall in supply due to practice of market power
generates the deadweight loss which is not socially desirable. In the reaction of this incident,
countries have antitrust to restrict the capability of firms to accumulate market power
(Kirkwood, 2018). Moreover, the market power raises the price for which there is fall in
consumers’ surplus. There is a fall in consumers’ surplus as a dead weight loss is generated

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due to the price greater than the marginal cost. This ultimately reduces the economic welfare.
There are few more problems like restriction in choice of consumer and a reduction in
sovereignty of consumers. Now, to reduce and stop taking advantage of market power,
antitrust authorities conduct the market definition market power tests.

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Reference
Bougette, P., Deschamps, M., & Marty, F. (2015). When economics met antitrust: The
second Chicago School and the economization of antitrust law. Enterprise & Society,
16(2), 313-353.
Bradford, A., Chilton, A. S., & Maria Lancieri, F. (2019). The Chicago School’s Limited
Influence on International Antitrust. University of Chicago Law Review, Forthcoming.
Chan, P., & Sircar, R. (2015). Bertrand and Cournot mean field games. Applied Mathematics
& Optimization, 71(3), 533-569.
Khan, L. M., & Vaheesan, S. (2017). Market power and inequality: The antitrust
counterrevolution and its discontents. Harv. L. & Pol'y Rev., 11, 235.
Kirkwood, J. B. (2018). Market Power and Antitrust Enforcement. BUL Rev., 98, 1169.
Melkonyan, T., Zeitoun, H., & Chater, N. (2017). Collusion in Bertrand vs. Cournot
Competition: A Virtual Bargaining Approach. Management Science.