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 Vanessas firm un 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 Vanessas firm still earning positive economic profits.

B) At what level does an oligopolist maximize profit?

C) Why would an Oligopolist want to decrease its price?

D) Suppose the oligopolists in Vanessas industry engage in a price war. What will happen to economic profits?