Documents about Imperfect Competition

  • 1 Pages

    Chapter 16 Notes

    Cornell, ECON 1110

    Excerpt: ... Chapter 16 Notes Imperfect Competition -oligopoly (also duopoly) concentration ratio monopolistic competition -competition between similar products for the same consumers cartels/collusion ...

  • 2 Pages


    Cal Poly Pomona, EC 201

    Excerpt: ... Notes on Efficiency: Pure vs. Imperfect Competition 1. P vs. Q Given graph, imperfect competition Pm, Qm Perfectly competitive pricing requires P = MC which occurs at PC, QC P PM PC MR 0 QM QC MC Perfect Comp D Q 2. Allocative Efficiency As shown above, the imperfectly competitive firm restricts output because it is in its own private best interest. But is it societys best interest? If Q increases beyond QM P > MC for units QM to QC Consumers are willing to pay more for additional units of the good than the opportunity cost (MC) of producing those additional units. Society values additional units of this good more than the alternative goods that these resources could produce. Society will get greater overall satisfaction if more resources are transferred to production of this good. Satisfaction continues to increase as resources are added until P= MC. At this point, consumers (societys) total satisfaction is maximized. It is said that Allocative Efficiency is achieved ...

  • 5 Pages


    University of Michigan, ECON 398

    Excerpt: ... 1/29/2009 Imperfect Competition We consider competition in a market with a linear demand curve: Q = D( P) = 302 P Inverse demand: P = 302 Q First think of a monopolist with cost C (Q) = 2Q Monopolist seeks to maximize profit: Imperfect Competition : Cournot 2 firms, 1 & 2 Each simultaneously brings its quantity to market: q1, q 2 Total market quantity: Q = q1 + q2 Each has costs: C (q ) = 2q We seek a Nash Equilibrium q1* &q 2 * = PQ C (Q) = (302 Q)Q 2Q = 300Q Q 2 d = 300 2Q = 0 Q M = 150, P M = 152, M = 22,500 dQ Imperfect Competition : Cournot We calculate Firm 1s Best Response Function Imperfect Competition : Cournot Similarly for Firm 2: q 2 = B 2( q1) = We seek a NE, so we want 1( q1, q 2) = [302 (q1 + q 2)]q1 2q1 = 300q1 q1q 2 q12 300 q 2 d1 = 300 q 2 2q1 = 0 q1 = dq1 2 300 q1 2 q1* = 300 q 2 * 300 q1* , q 2* = 2 2 Solving two equations in two unknowns yields q1 = B1(q 2) = 300 q 2 2 q1* = 100, q 2* ...

  • 3 Pages

    Chapter 9

    Hobart and William Smith Colleges, ECON 160

    Excerpt: ... Chapter 9 Monopoly and Other Forms of Imperfect Competition Why study perfect competition? o This is the ideal market o Should compare other markets to this standard Imperfect Competition Various forms of imperfect competition : Pure Monopoly (most inefficient) the only supplier of a unique product with no close substitutes Oligopoly - (more efficient than a monopoly) a firm that produces a product for which only a few rival firms produce close substitutes Ex. Duopoly 2 firms control the market Monopolistic Competition (closest to perfect competition) a large number of firms that produce slightly differentiated products that are reasonably close substitutes for one another. Perfectly Competitive D D Imperfectly Competitive D D Monopoly Monopolistic Market Power Higher price without losing customers is market power. 5 Sources of Market Power: 1. Exclusive control over inputs Ex. Perrier owns its springs, no one else can use them 2. Patents and Copyrights Ex. Microsoft own ...

  • 22 Pages

    Short 5

    UCSD, ECON 101

    Excerpt: ... E 101: Short Note 5. Economies of Scale & Trade (* Lectures are mainly based on our textbook, Krugmans International Economics: Theory and Policy. Thorough reading of the text in addition to active participation in classes is strongly recommended. This note is just a short list of topics we discuss in class for your reference.) II. New Trade Theory: Imperfect Competition & Trade 1. Imperfect competition and intra-industry trade O Source of Imperfect Competition : Economies of Scale External economies of scale occur when cost per unit of output depends on the size of the industry. Internal economies of scale occur when the cost per unit of output depends on the size of a firm. 1 External economies of scale may result if a larger industry allows for more efficient provision of services or equipment to firms in the industry. Many small firms that are competitive may comprise a large industry and benefit from services or equipment efficiently provided to the large group of firms. I ...

  • 5 Pages

    BCOR 1010 Final Exam Notes

    Colorado, BCOR 1010

    Excerpt: ... Final Exam: Tips: o Read the question completely. Questions may have more than one part o Think: Before write the answer-how many points is the question worth o Answer: the whole question or questions o Bullet pts. OK o Be aware of your test taking w ...

  • 7 Pages


    University of Michigan, ECON 398

    Excerpt: ... 2/5/2009 A Note About Equilibria Some games Get feel for what an equilibrium might be Show that if everyone does it, nobody has an incentive to change Show everything else isnt equilibrium: for each other possible strategy profile, somebody has an incentive to change Imperfect Competition : Bertrand Two firms set prices p1, p 2 in a market with complete information, especially of prices Consumers only buy from the cheaper firm If two firms set the same price, each firm gets half the market demand at that price Again market demand is given by Others games when youre clueless Calculate best responses Equilibria occur where best responses cross Q = D ( P ) = 302 P Each firms cost is given by C ( q ) = 2 q Firm 1s profit: 1 = p1 q1 2 q1 Imperfect Competition : Bertrand Firm 1s demand looks like Imperfect Competition : Bertrand p2 302 PM q1 = 302 p1 q1 = if p1 < p 2 1 (302 p1) if 2 q1 = 0 if p1 = p 2 p1 > p 2 2 Recall the monopolists price: P M = 152 2 PM ...

  • 27 Pages

    Lecture 20

    Virginia Tech, ECON 2005

    Excerpt: ... Announcements MT2 is two weeks from today. It will go through chapter 10. 1 of 22 Chapter 9 - Monopoly 2 of 38 IMPERFECT COMPETITION AND MARKET POWER: CORE CONCEPTS imperfectly competitive industry An industry in which single firms have some control over the price of their output. market power An imperfectly competitive firm's ability to raise price without losing all of the quantity demanded for its product. Imperfect competition does not mean that no competition exists in the market. In some imperfectly competitive markets competition occurs in more arenas than in perfectly competitive markets. Firms can differentiate their products, advertise, improve quality, market aggressively, cut prices, and so forth. But in one case, there truly is NO competition a monopoly. 3 of 38 IMPERFECT COMPETITION AND MARKET POWER: CORE CONCEPTS pure monopoly An industry with a single firm that produces a product for which: 1)there are, no close substitutes and 2) significant barriers to entry exist to prevent oth ...

  • 2 Pages


    Berkeley, ECON c181

    Excerpt: ... International Trade, Economics 181 Problem Set 3: Imperfect Competition Due Date: November 7, Beginning of Class 1. For each of the following examples, explain whether this is a case of external or internal economies of scale: (a) Most musical wind instruments in the Untied States are produced by more than a dozen factories in Elkhart, Indiana. (b) All Hondas sold in the United States are either imported or produced in Marysville, Ohio. (c) All airframes for Airbus, Europes, only producer of large aircraft, are assembled in Toulouse, France. (d) Hartford, Connecticut, is the insurance capital of the northeastern United States. 2. In perfect competition, firms set price equal to marginal cost. Why this possible when isnt there are internal economies of scale? 3. Suppose the widget industry operates in the home country, such that each firms sales of widgets is given by: 1 X = S b ( P P ) n where X is firm sales, S is total industry sales, n is the number of firms, P is the ...

  • 3 Pages

    econ ch 15 outline

    Cornell, ECON 1110

    Excerpt: ... Kristin Chen ECON CH 15Oligopoly 1. Prevalence of Oligopoly a. Oligopoly = industry with only a small number of producers b. Oligopolist = producer in an oligopoly c. Imperfect competition = when no one firm has a monopoly but producers nonetheless realize that they can affect market prices in an industry i. 2 forms: oligopoly & monopolistic competition d. Most importance source of oligopoly = economies of scale 2. Understanding Oligopoly a. Duopoly = oligopoly consisting of only 2 firms b. Duopolist = each firm in a duopoly c. Collusion = when sellers cooperate to raise each others' profits d. Cartel = strongest form of collusion, arrangements that determines how much each firm is allowed to produce e. Noncooperative behavior = when firms ignore the effects of their actions on each other's profits 3. Games Oliopolists Play a. Interdependence = when decisions of 2+ firms significantly affect each other's profits b. Game theory = study of behavior in situations of interdependence c. Payoff = reward received b ...