| Chapter 25. Oligopoly#1: Calculating the Total Profit of the Oligopolist with a Kinked Demand Curve.
When an oligopolist has a kinked demand curve, we know she is a cutthroat competitor. Consequently the price that she charges will tend to remain the same for long periods of time. And that price will be at the kink in her demand curve.
Again, we use the identical formula and analysis for finding total profit for the cutthroat oligopolist that we used for each of the other types of competitors that we've encountered so far. To review: Where do we find output, price, and ATC?
We find output where MC = MR; we find price on the demand curve (in this case at the kink); and we find ATC on the ATC curve at that output at which MC = MR. Now I'd like you to look at Figure 25.1 and then use the formula to find the firm's total profit.
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Figure 25.1
Solution:| Total Profit | = | Output (Price - ATC) | | = | 60 ($9 - $6) | | = | 60 ($3) | | = | $180 |
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