a) What is meant by price rigidity, under oligopoly.
b) Elaborate the implication of the conditions of equilibrium of a firm
a) What is meant by price rigidity, under oligopoly.
b) Elaborate the implication of the conditions of equilibrium of a firm
(a). Price rigidity is the price of the product fixed after deliberations and negotiations by the oligopolistic firms, to which they generally stick with a view to avoid any sort of price war.
(b). Firm’s equilibrium is that level of output where its profits are maximized Conditions of Firm’s Equilibrium:
i) Marginal Revenue must be equal to Marginal Cost.
ii) Marginal Cost must be rising.
The conditions implies that the slope of rising Marginal Cost Curve is equal to the slope of Marginal Revenue curve.
Implication of the conditions lies in the fact that beyond the equilibrium point MC would become greater than MR, i.e. for each additional unit sold beyond output OQ the cost of producing that unit will be more than the revenue generated by the unit.
(a). Price rigidity is the price of the product fixed after deliberations and negotiations by the oligopolistic firms, to which they generally stick with a view to avoid any sort of price war.
(b). Firm’s equilibrium is that level of output where its profits are maximized Conditions of Firm’s Equilibrium:
i) Marginal Revenue must be equal to Marginal Cost.
ii) Marginal Cost must be rising.
The conditions implies that the slope of rising Marginal Cost Curve is equal to the slope of Marginal Revenue curve.
Implication of the conditions lies in the fact that beyond the equilibrium point MC would become greater than MR, i.e. for each additional unit sold beyond output OQ the cost of producing that unit will be more than the revenue generated by the unit.
