According to Robert Guy Matthews, “Fixed Costs Chafe at Steel Mills,” Wall Street Journal, June 10, 2009, stainless steel manufacturers increased prices even though the market demand curve had shifted to the left. In a letter to its customers, one of these companies announced that “Unlike mill increases announced in recent years, this is obviously not driven by increasing global demand, but rather by fixed costs being proportioned across significantly lower demand.” If the firms are oligopolistic, produce a homogeneous good, face a linear market demand curve and have linear costs, and the market outcome is a Nash-Cournot equilibrium, does the firm’s explanation as to why the market equilibrium price is rising make sense? What is a better explanation?
Answer to relevant QuestionsWhat is the homogeneous- good duopoly’s Nash- Cournot equilibrium if the market demand function is Q = 1,000 – 1,000p and each firm’s marginal cost is $ 0.28 per unit?Why does differentiating its product allow an oligopoly to charge a higher price?Firms 1 and 2 produce differentiated goods. Firm 1’s inverse demand function is p1 = 260 – 2q1 – q2, while Firm 2’s inverse demand function is p2 = 260 – 2q2 – q1. Each firm has a constant marginal cost of 20. ...Q& A 11.3 shows that a monopolistically competitive firm maximizes its profit where it is operating at less than full capacity. Does this result depend upon whether firms produce identical or differentiated products? Why?Given the network profit matrix in Question 2.1, can cheap talk help the networks settle on a single equilibrium? Why or why not?
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