What are the implications of these beliefs for output

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Reference no: EM131505133

Question: Suppose that a duopolist holds the following beliefs about the behaviour of a rival.

(a) If the duopolist makes ‘small' changes in price, say within 10 per cent of the current price, either up or down, the rival will not react.

(b) If the duopolist makes ‘large' changes in price, the rival will match the changes exactly. Derive the average and marginal revenue curves implied by these beliefs.

What are the implications of these beliefs for output and price setting?

Reference no: EM131505133

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