Pdf - . Interest rates A. What is interest? (1 point) B. Draw a graph that represents PDF

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. Interest rates
A. What is interest? (1 point)
B. Draw a graph that represents the market for loanable funds. Label your graph
completely. (2 points)
C. Who demands loanable funds? Explain why the demand curve sweeps
downward. (2 p...

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AP Microeconomics: Apply Concepts of Oligopoly and Oligopoly Models 1. An oligopoly in short-run equilibrium. A. Vanessa is an oligopolist who believes that if she decreases her price, her competitors will not follow and decrease their prices. Draw a graph showing Vanessa's firm in short-run equilibrium, using demand, marginal cost, marginal revenue, and average-total-cost curves. Indicate the price and quantity Vanessa will produce in short-run equilibrium, and show a price decrease that results in Vanessa's firm still earning positive economic profits. (10 points)

B. At what level of output does an oligopoly maximize profit? (4 points) MC=MR C. Why would an oligopolist want to decrease its price? (4 points) They would want to do this to seek more revenue because consumers will buy more if their product price has decreased D. Vanessa was wrong about the actions of her competitors! They decreased their prices when Vanessa decreased hers. What should Vanessa do in response? Why? (4 points)

This would cause long run equilibrium so Vanessa could not change her prices but then she would not earn an economic profit or she could lower them again in hopes the firms won’t lower their so she can earn an economic profit. E. Suppose the oligopolists in Vanessa's industry engage in a price war. What will happen to economic profits? (4 points) They will be decreased because the oligopolists would abe to reduce their price also. F. Price wars result in decreasing prices, as rivals undercut each other. In a price war, would rival firms have an incentive to collude? Explain your answer. (4 points) Yes, because this would stop the reduction in economic profit because there would be a set price and output so the firms cannot undercut each other anymore. 2. Price rigidity and the kinked demand curve. A. An analysis of the kinked demand curve helps in understanding why price changes without collusion in an oligopoly tend to happen infrequently. Draw the demand, marginal revenue, and marginal cost curves for an oligopolist that produces a differentiated product and assumes its rivals will not match its price changes. Indicate the profit-maximizing price and quantity on your graph. (5 points)

B. The oligopolist is charging the profit-maximizing price you found in part 2A. It, in effect, is operating as a monopoly and relying on price elasticity of demand to help it maximize its profits. Suppose it now assumes that its competitors will match its price changes. On the same graph, draw new, more inelastic demand and marginal revenue curves for this oligopolist. The old and new demand curves should intersect at the oligopolist's current price from part 2A. (5 points)

C. Compare the relative elasticity of the demand curves from parts A and B. Why is the elasticity different for the different demand curves? (4 points)

In part A the curve is flatter therefore it is more elastic than part B because it is steeper making it more inelastic. D. Now let's suppose that the oligopolist assumes that its competitors will not match its price increases, but will match its price decreases. On a new graph, draw the demand and marginal revenue curves. Draw a vertical line at the market price. To the left of the vertical line, show the demand and marginal revenue curves for the firm before the elasticity shifted. To the right, show the demand and marginal revenue curves for the more inelastic assumption. Where does the kink in the demand curve occur? What happens to the marginal revenue curve? (5 points)

E. What happens to the price and output if the marginal cost curve changes within the gap, or discontinuous part, of the marginal revenue curve? What will happen to the profit? (4 points) The price and output remains the same if the MC curve changes within the gap of the MR curve. The profit level also remains at the same level. F. Where does the "kink" in the demand curve occur? (1 points)

At the interaction of two demand curve of oligopolists. G. What is the major point of the kinked demand theory? (3 points) The infrequently changes in price of oligopoly. H. Why do some economists criticize this kinked demand theory? (3 points) It doesn’t explain how equilibrium price and quantity are initially determined, simplifies how oligopolies change prices, and it violates ceteris paribus....