What is a reaction curve in an oligopolistic market?
A reaction curve RC, also called reaction function or best-reply function, is the locus of optimal, i.e. profit-maximizing, actions that a firm may undertake for any given action chosen by a rival firm. In the diagram the market equilibrium is at the intersection of the RCs, one for each firm.
What is oligopoly reaction function?
It is a reaction function since it describes what Firm One’s reaction will be given the output level of Firm Two. Firm One’s optimal output level depends on Firm Two’s behavior and decision making. Oligopolists are interconnected in both behavior and outcomes.
What is the reaction curve?
A reaction curve (or best-response curve) is a graph which shows profit-maximizing output of one firm in a duopoly given the output of the other firm.
What is Isoprofit curve?
A curve showing the combinations of two or more variables that generate the same level of profit for a firm. In a duopoly model an isoprofit curve can depict combinations of output levels of the two firms that lead to a constant level of profit for one of the firms.
How do I make Isoprofit curve?
The equation of any isoprofit curve can be written as P=MC+k/Q. So if k>0, then P>MC, which means that the slope is always negative.
What is the average cost curve?
The average total cost curve is typically U-shaped. Average variable cost (AVC) is calculated by dividing variable cost by the quantity produced. The average variable cost curve lies below the average total cost curve and is typically U-shaped or upward-sloping.
What is the market structure of an oligopoly?
Oligopoly Market. Definition: The Oligopoly Market characterized by few sellers, selling the homogeneous or differentiated products. In other words, the Oligopoly market structure lies between the pure monopoly and monopolistic competition, where few sellers dominate the market and have control over the price of the product.
How many businesses make up an oligopoly?
An oligopoly is a type of market that has a small number of producers ( oligopolists ) who dominate the market; typically it is defined as two to eight firms that own at least 80% of the market share.
What are the example of firms under oligopoly?
Oligopolies in history include steel manufacturers, oil companies, railroads, tire manufacturing, grocery store chains , and wireless carriers . The economic and legal concern is that an oligopoly can block new entrants, slow innovation, and increase prices, all of which harm consumers.
What are the types of oligopoly?
There are two major models for oligopoly: the Cournot model and the Bertrand model. In the Cournot model, each company assumes the output of the others, resulting in greater output than in a monopoly but less than in a state of perfect competition.
