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Chapter_9 - Monopoly,Oligopoly,and Monopoly,Oligopoly,and...

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Monopoly, Oligopoly, and  Monopoly, Oligopoly, and  Monopolistic Competition Monopolistic Competition
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Imperfect Competition Imperfect Competition Perfectly competitive firms are price takers. Imperfectly competitive firms have some control of  price. • Three types   1. Monopoly : only one seller, no close substitutes 2. Monopolistic competition : many firms with  differentiated products These products are all close substitutes 3. Oligopoly : a small number of firms producing close  substitutes
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Monopolistic Competition Monopolistic Competition Monopolistic  Competition Number of Firms Many firms Price Limited flexibility Entry and Exit Free Product Differentiated Economic  Profits Zero in long run Decisions P, Q, product  differentiation Perfect  Competition Many firms Price taker Free Standardized Zero in long run Q only
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Oligopoly Oligopoly Oligopoly Number of  Firms Few firms,  each large Price Some flexibility Entry and  Exit Large size firm Product Differentiated or  standardized Economic  Profits Possible Decisions P, Q, differentiation,  advertising Perfect  Competition Many firms Price taker Free Standardized Zero in long run Q only
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The Essential Difference The Essential Difference Quantity Price Imperfectly Competitive Firm D Quantity Price Perfectly Competitive Firm D Market Power: a firm’s ability to raise the price of a good without losing all its  sales.  
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Five Sources of Market Power Five Sources of Market Power 1. Exclusive control over inputs 2. Patents and copyrights 3. Government licenses or franchises 4. Economies of scale (natural monopolies) 5. Network economies
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Market Power:  Economies of Scale Market Power:  Economies of Scale Returns to scale : the percentage change in  output from a given percentage change in ALL  inputs Constant returns to scale:   doubling all inputs  doubles output Increasing returns to scale:   output increases by  a greater percentage than the increase in inputs Average costs decrease as output increases Natural monopoly:   a monopoly that results from  economies of scale
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Market Power:  Network  Market Power:  Network  Economies Economies Network economies  occur when the  value of the product increases as the  number of users increases Telephones Windows operating system eBay Facebook and MySpace
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Economies of Scale and Start-Up Costs Economies of Scale and Start-Up Costs
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