EC 201 10-24-08 - Perf Comp Monop Comp both have free entry...

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EC 201 10-24-08 Monopolistic Competition o Many firms, each small (no mkt. power by size) o Product differentiation (some mkt. power) Ex.: retailing Gasoline station can raise price some and not lose all customers Clothing Location Styling Service “some” or “a little” mkt. power →D downward sloping, but fairly elastic Profit per unit=P-ATC If econ profit >0, P>ATC at Q* Monop. Comp.: free entry + exit, no barriers to entry If positive econ. Profit 1. Entry 2. Prices ↓ until zero econ. Profit → P=ATC Monop. Comp. with zero econ. Profit
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Unformatted text preview: Perf. Comp. Monop. Comp. } both have free entry →tendency toward zero econ. Profit Evaluation of monop. Comp. • Zero econ. Profit • P>MC, but not by much • ATC not nec. Min. but close to cost-min. • Variety • Oligopoly o Few sellers o Strategy +interactions of firms o Often, oligopoly want to collude (cooperate) → “cartel” collusion among oligop. Firms o If cartel “succeeds”, raise P, P↓ Shared monopoly o Goal: charge monopoly P + divide up monopoly profits o Often, cartel members “cheat” on agreement...
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EC 201 10-24-08 - Perf Comp Monop Comp both have free entry...

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