competitive advantage over these firms) Price maker but still mutually interdependent Monopoly Single firm High barrier to entry and exit Unique products (specialized) Downward Sloping Demand Curve Profit making possibility is large(Positive) Price Maker Monopolistic Competition Numerous numbers of firms Low barriers to entry or exit Differentiated products Downward Sloping Demand curve Short run profit, zero long run profit Price Maker
Question 2 (Points: 20) Show that the monopolistically competitive firm is earning positive economic profits. Next, change your graph to show the effects of the entry of new firms into the market What can we say about the long-run price of a product produced by a firm in a monopolistically competitive industry? Is monopolistic competition efficient?
Question 3 (Points: 10) Game theory is a mathematical technique for analyzing the decisions of interdependent oligopolistic firms in uncertain situations. A “game” here is a competitive situation where two or more firms or individuals pursue their interests and no person can dictate the final outcome or “payoff”. The fundamental tool of game theory is the “payoff matrix”. This is simply a way of organizing the potential outcomes of a given game when they are contingent upon the game player’s actions. To illustrate the payoff matrix and the general idea of game theory we will go through in class the
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