Notes_CH_16-22.doc - Microeconomics Module 4 Chapters 16-22 Chapter 16 Oligopoly Chapter 16 is the fourth chapter in a five-chapter sequence dealing

Notes_CH_16-22.doc - Microeconomics Module 4 Chapters 16-22...

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Microeconomics Module 4 Chapters 16-22 Chapter 16 Oligopoly Chapter 16 is the fourth chapter in a five-chapter sequence dealing with firm behavior and the organization of industry. The previous two chapters discussed the two extreme forms of market structure—competition and monopoly. The market structure that lies between competition and monopoly is known as imperfect competition . There are two types of imperfect competition—oligopoly and monopolistic competition. Chapter 16 addresses oligopoly while the final chapter in this sequence, Chapter 17, addresses monopolistic competition. The purpose of Chapter 16 is to discuss oligopoly —a market structure in which only a few sellers offer similar or identical products. Since there are only a few sellers in an oligopolistic market, oligopolistic firms are interdependent while competitive firms are not. That is, in a competitive market, the decisions of one firm have no impact on the other firms in the market while in an oligopolistic market, the decisions of any one firm may affect the pricing and production decisions of the other firms in the market. KEY POINTS OF THE CHAPTER CHAPTER OUTLINE:
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I. Between Monopoly and Perfect Competition A. The typical firm has some market power, but its market power is not as great as that described by monopoly. B. Firms in imperfect competition lie somewhere between the competitive model and the monopoly model. C. Definition of oligopoly : a market structure in which only a few sellers offer similar or identical products. D. Definition of monopolistic competition : a market structure in which many firms sell products that are similar but not identical. E. Figure 1 summarizes the four types of market structure. Note that it is the number of firms and the type of product sold that distinguishes one market structure from another.
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