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# Managerial Economics – HW 6 Name:_____________________ Must Show Work for Full or Partial Credit Question 1: Sweezy Oligopoly Part A: Graph the demand curve and the marginal cost curve of a company...

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Managerial Economics – HW 6
Name:_____________________ Must Show Work for Full or Partial Credit
Question 1: Sweezy Oligopoly
Part A: Graph the demand curve and the marginal cost curve of a company operating under a Sweezy
Oligopoly.
Part B: Explain how economists identify the point where the demand curve kinks.
Question 2: Cournot & Stackelberg
Part A: Graph the best response function for two companies operating under a Cournot Oligopoly.
Part B: Graph the output of two firms during Stackelberg competition.
Question 3: Insurance
Part A: Explain why insurance companies cannot insure when there is uncertainty.
Part B: Explain two ways insurance companies help companies make more cost effective decisions.
Answered Same DayDec 06, 2021

## Solution

Arijit Shankar answered on Dec 08 2021
1
48638
1 a. Demand Curve
Price
P1
Elasticity >1
D
P0
K
P2
Elasticity <1
D’
Q2
Q1
Q0
Quantity
0
Fig. 1 Demand Curve
Price
D
MC2
P0
K
MC1
MR
D’ (AR)
Q2
Q0
Quantity
0
Fig. 1 Marginal Cost Curve
Change in marginal cost reduces the output. MC1 is the initial cost curve and MC2 is the revised marginal cost curve.
1 b. If the firm increases the price then the competitors will not increase the price and the demand faced the firm is elastic which is shown by the part KD in the above diagram. The quantity demanded is very sensitive to price in this case. Now, if the firm lowers the price, then the competitors will match the price change and the firm will not get as much as customers as expected due to the price decline. Thus, the demand curve faced by the firm will be inelastic. Thus, the demand curve faced here will be KD’. Thus the whole demand curve will be DKD’.
2 a. The best response function also known as the reaction function highlights the optimal...
SOLUTION.PDF