Chapter 7 Practice

Chapter 7 Practice - Chapter 7: Repetition and Practice...

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Chapter 7: Repetition and Practice
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Market Power What are the two ways a firm can acquire market power (i.e. the power to influence the price of its own product)? Hint: What assumptions of pure competition have to be violated?
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Market Power Product Differentiation Control over Supply
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Price Searcher What is the fundamental difference between the environment a price taker faces and the environment a price searcher faces?
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Price Searcher Price searcher: can increase its price and still retain some customers But: a price taker can sell any quantity at the market price, if a price searcher wants to increase the quantity sold he must decrease his price Reason: price taker faces a perfectly elastic demand, price searcher does not
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Profit Maximizing Behavior of a Firm with Market Power Still: profit max at a quantity where MR = MC Difference to price taker: MR now always lower than price (recall MR = P for a price taker) Reason??
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Profit Maximizing Behavior of a Firm with Market Power
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This note was uploaded on 04/29/2008 for the course ECON 101 taught by Professor Fels during the Spring '08 term at Wisconsin Milwaukee.

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Chapter 7 Practice - Chapter 7: Repetition and Practice...

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