Do the firms in an oligopoly act independently or interdependently?

1. Do the firms in an oligopoly act independently or interdependently? Explain your answer.

2. A monopolistically competitive firm has the following demand and cost structure in the short run:

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Output Price FC VC TC TR Profit/Loss

0 $90 $90 $ 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?

3. Suppose that Wal-World and Tarbo are independently deciding whether to implement a new bar code technology. 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.

a. Briefly explain whether Wal-World has a dominant strategy.

b. Briefly explain whether Tarbo has a dominant strategy.

c. Briefly explain whether there is a Nash equilibrium in this game.

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