The simple profit maximization model requires no strategic understanding. The decision rule is simply produce where marginal revenue equals marginal cost.

   Consider the oligopolist who tries to apply this simple model. The problem is that a competitor can affect the firm's demand and marginal revene. Setting marginal revenue equal to marginal cost is difficult if the marginal revenue curve is easily affected by a competitor's decisions.

   Suppose data for JVC's 32 inch TVs are shown to the right. Based on its best information profit maximizing price and quantity are P1, Q1.

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