Production Decision Worksheet
As you make your production decisions, the following hints and examples may help you
increase your profits.
1) The interaction of market demand and market supply will determine the market clearing
price - the price at which the units your firm produces will sell.
2) In each round, a forecast of market demand will be displayed on the overhead. Remember
that it is only a forecast, and actual demand may vary from the forecast somewhat.
3) You will have to make your own forecast, or prediction, of market supply. You will know
how many units your own company will produce, but the TOTAL market supply will
include not only your own production but also that of the other companies in the room.
Example: If you produce one unit and so do all of the other companies, the total
supply will be 6 units. According to the demand forecast, if 6 units are produced, the market
price will be $125 per unit.
Your decision must also take into account your production cost. Suppose your cost is
$25 per unit. Your total production cost is 1 unit times $25 per unit equals $25.
Units sold at market price = 1 X $125 = $125 (your total revenue)
Total Revenue - Total Cost = Total Profit
$125 - $25
= $100
4) Try the following problem:
Suppose your group produces 3 units, and total market supply is 19 units, and your
production cost is $25 per unit.
Cost of Production X # of units produced = Total cost of production
_______________ X ______________ = ___________
Units Sold X Price = Total Revenue
________ X _____ = _________
Total Revenue - Total Cost = Total Profit
___________ - _________ = _________
5) Try one more example:
Your group produces 7 units, market supply is 42, and cost of production is $25/unit.
What is your profit? ________
Reminders:
Your production decisions and the production decisions of your competitors determine
the market clearing price.
The market clearing price and your production cost will determine how much profit you
make.
Balance Sheet for Team ______
BEGINNING BALANCE
=
ROUND 1
Production Cost
Revenue
–
+ __________
New Balance
=
Production Cost
Revenue
–
+ __________
New Balance
=
Production Cost
Revenue
–
+ __________
New Balance
=
Production Cost
Revenue
–
+ __________
New Balance
=
Production Cost
Revenue
–
+ __________
New Balance
=
Production Cost
Revenue
–
+ __________
New Balance
=
Production Cost
Revenue
–
+ __________
New Balance
=
Production Cost
Revenue
–
+ __________
New Balance
=
Production Cost
Revenue
–
+ __________
New Balance
=
ROUND 2
ROUND 3
ROUND 4
ROUND 5
ROUND 6
ROUND 7
ROUND 8
ROUND 9
$100
(Cost = cost card x quantity)
(Rev = actual price x quantity)
Oligopoly Game Breakdown
Honors Economics
Name: ________________
Try to answer the following questions from yesterday’s game.
1. Pick a team for each round and analyze their choice. Try to find ones that are unique.
a. Round Two
b. Round Three
c. Round Four
d. Round Five
e. Round Six
f. Round Seven
g. Round Eight
2. What strategy was the most successful?
3. What behavior works the best for an individual company?
4. What behavior works best for the market as a whole?
5. Is there an incentive to collude? Why don’t companies do it?
6. Examine the strategy of the team who made the most money. What part of their strategy was most
effective?
7. Examine the strategy of the team who made the least money. Where did they go wrong?