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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- Fall '08
- YASIN
- Economics, Microeconomics, Perfect Competition, downward sloping demand, sloping demand curve