Lecture 10 - OligopolyandMonopolistic Competition Mercedes...

Info iconThis preview shows pages 1–9. Sign up to view the full content.

View Full Document Right Arrow Icon
Mercedes Miranda BE530 1 Oligopoly and Monopolistic  Competition
Background image of page 1

Info iconThis preview has intentionally blurred sections. Sign up to view the full version.

View Full DocumentRight Arrow Icon
2 1. Monopolistic Competition 2. Oligopoly 3. Price Competition 6. Cartels Lecture Outline
Background image of page 2
3 monopolistic competition: Market in which firms can enter freely, each producing its own brand or version of a differentiated product. The Makings of Monopolistic Competition A monopolistically competitive market has two key characteristics: 1. Firms compete by selling differentiated products that are highly substitutable for one another but not perfect substitutes. In other words, the cross-price elasticities of demand are large but not infinite. 2. There is free entry and exit: it is relatively easy for new firms to enter the market with their own brands and for existing firms to leave if their products become unprofitable. 1. Monopolistic Competition
Background image of page 3

Info iconThis preview has intentionally blurred sections. Sign up to view the full version.

View Full DocumentRight Arrow Icon
4 Fig. 1 Monopolistic Competition in the Short Run Quantity 0 Price Profit-maximizing quantity Price Demand MR ATC (a) Firm Makes Profit Average total cost Profit MC
Background image of page 4
5 Quantity Price 0 Demand MR ATC MC Profit-maximizing quantity P = ATC Fig. 2 A Monopolistic Competitor in the Long Run
Background image of page 5

Info iconThis preview has intentionally blurred sections. Sign up to view the full version.

View Full DocumentRight Arrow Icon
6 Quantity 0 Price Demand (a) Monopolistically Competitive Firm Quantity 0 Price P = MC P = MR (demand curve) (b) Perfectly Competitive Firm MC ATC MC ATC MR Efficient scale P Quantity produced Quantity produced = Efficient scale Excess capacity Markup Fig. 3 Monopolistic versus Perfect Competition
Background image of page 6
7 Oligopoly: Market in which only a few firms compete with one another, and entry by new firms is impeded. The Makings of Oligopoly In oligopolistic markets, the products may or may not be differentiated. What matters is that only a few firms account for most or all of total production. In some oligopolistic markets, some or all firms earn substantial profits over the long run because barriers to entry make it difficult or impossible for new firms to enter. Oligopoly is a prevalent form of market structure. Examples of oligopolistic industries include automobiles, steel, aluminum, petrochemicals, electrical equipment, and computers. 2. Oligopoly
Background image of page 7

Info iconThis preview has intentionally blurred sections. Sign up to view the full version.

View Full DocumentRight Arrow Icon
8 When a market is in equilibrium, firms are doing the best they can and have no reason to change their price or output. Nash Equilibrium
Background image of page 8
Image of page 9
This is the end of the preview. Sign up to access the rest of the document.

Page1 / 23

Lecture 10 - OligopolyandMonopolistic Competition Mercedes...

This preview shows document pages 1 - 9. Sign up to view the full document.

View Full Document Right Arrow Icon
Ask a homework question - tutors are online