econchap16

# econchap16 - BETWEEN MONOPOLY AND PERFECT COMPETITION...

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1 Oligopoly Chapter 16 BETWEEN MONOPOLY AND PERFECT COMPETITION s Imperfect competition refers to those market structures that fall between perfect competition and pure monopoly. s Imperfect competition includes industries in which firms have competitors but do not face so much competition that they are price takers. BETWEEN MONOPOLY AND PERFECT COMPETITION s Types of Imperfectly Competitive Markets b Oligopoly s Only a few sellers, each offering a similar or identical product to the others. b Monopolistic Competition s Many firms selling products that are similar but not identical. Figure 1 The Four Types of Market Structure • Tap water • Cable TV Monopoly (Chapter 15) • Novels • Movies Monopolistic Competition (Chapter 17) • Tennis balls • Crude oil Oligopoly (Chapter 16) Number of Firms? Perfect • Wheat • Milk Competition (Chapter 14) Type of Products? Identical products Differentiated products One firm Few firms Many firms MARKETS WITH ONLY A FEW SELLERS s Because of the few sellers, the key feature of oligopoly is the tension between cooperation and self-interest. s Characteristics of an Oligopoly Market b Few sellers offering similar or identical products b Interdependent firms b Best off cooperating and acting like a monopolist by producing a small quantity of output and charging a price above marginal cost A Duopoly Example s A duopoly is an oligopoly with only two members. It is the simplest type of oligopoly.

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2 Table 1 The Demand Schedule for Water A Duopoly Example s Price and Quantity Supplied b The price of water in a perfectly competitive market would be driven to where the marginal cost is zero: s P = MC = \$0 s Q = 120 gallons b The price and quantity in a monopoly market would be where total profit is maximized: s P = \$60 s Q = 60 gallons A Duopoly Example s Price and Quantity Supplied b The socially efficient quantity of water is 120 gallons, but a monopolist would produce only 60 gallons of water. b
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econchap16 - BETWEEN MONOPOLY AND PERFECT COMPETITION...

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