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Competition
The Competitive Market Model Is a Cornerstone of Microeconomics
If supply and demand is the foundation of economics, the analysis of market structure is a close s
Key
1. For five identical firms, each firm would have 20% of the market. The HHI would be
=2000. This would be a concentrated industry, and, generally, mergers
wouldnt be allowed.
2. The deadweight loss would be 100 (change in quantity) times $50 (change
What are the elements of a market required for perfect competition? What do these
imply, and why is each one necessary?
What is different, in perfect competition, in an industry between the short and the
long run? What can we see in the short run that we
Example Exam Questions (Mathematical, Graphical)
1. Calculate the HHI for an industry with 5 identical sized firms.
2. A horizontal merger is proposed, which would increase market power and reduce cost
of production. Sales would go from 500 units to 400,
Homework #5
EC 360
Due at the beginning of class, November 19th
1. Draw the short run monopolistic competition case for a firm. Assume that there are positive
economic profits.
2. Draw the long run monopolistic competition case for a firm.
3. What are the
Homework #4
Due at the beginning of class, November 12th
Predatory Pricing and Price Discrimination
a.
b.
c.
d.
e.
1. Lets say we have two car companies, Nissan and Toyota. Toyota is a monopolist
and Nissan is thinking of entering. If Toyota is left alone
Homework #5
EC 360
Due at the beginning of class, November 19th
1. Draw the short run monopolistic competition case for a firm. Assume that there are positive
economic profits.
Firms produce at the quantity at which MR=MC. In this case, profits exist beca
Homework #6
Due at the beginning of class, November 26th
Oligopoly and Cartels
1. If monopoly quantity is 100 and monopoly price is $200, what will price and firm
quantity be for a four-member successful cartel?
2. Lets say that there are two firms using
Chapter 14: SOLUTIONS TO TEXT PROBLEMS:
Quick Quizzes
1.
When a competitive firm doubles the amount it sells, the price remains the same, so its
total revenue doubles.
2.
The price faced by a profit-maximizing firm is equal to its marginal cost because if
Homework #6
Due at the beginning of class, November 26th
Oligopoly and Cartels
1. If monopoly quantity is 100 and monopoly price is $200, what will price and firm
quantity be for a four-member successful cartel?
Each firm will produce 25 units and the pri
EC 360
Price Discrimination
Haircuts
Movie tickets
Airplane tickets
Large customers (industrial consumers of
electricity)
Antitrust and Price Discrimination
Interesting problem
Price discriminating monopolists might reduce
deadweight loss
But wed prefe
Review Notes for the Final Exam
You should feel comfortable with each of these topics for the final exam.
1. What are the requirements of perfect competition?
2. What is the industry and firm outcome in perfect competition in the long and short run?
3. Wh
EC 360
Vertical Relationships
Think of a stream
Along the stream raw materials become
inputs become parts become final goods
If a firm vertically integrates (merges or
expands) upstream it is taking over the
production of a less developed part
If the
MCt is marginal cost of both types of production put together. MCt=MCp+MCr
MCp is the marginal cost of production (the cost of making the good)
MCr is the marginal cost of distribution or retail (the cost of distributing the good)
Dr is just the consumer
EC 360
Mergers
Weve spoken before about the merger waves
of the past
Firms merging implies that two or more firms
become one
Lockheed and Martin become Lockheed Martin
Time, Warner and Turner communications
become TimeWarner which then merges with AOL
60
CHAPTER 10 PERFECT COMPETITION
Assumptions of Perfect Competition
The most competitive market structure is pure or perfect competition, which is as competitive as
possible. As previously mentioned, market structures are models that summarize how certai
Economics 101
Fall 2011
Homework #6
Due: 12/13/2010 in lecture
Directions: The homework will be collected in a box before the lecture. Please place your name,
TA name and section number on top of the homework (legibly). Make sure you write your name
as it
Part 8
Monopolistic Competition
and Oligopoly
Most markets are not pure
monopolies or perfectly competitive,
but lie in-between
Monopolistic competition is a model
of a market that is competitive
many sellers, free entrybut with
differentiated products
Economics 101
Summer 2012
Answers to Homework #5
Due 6/20/12
Directions: The homework will be collected in a box before the lecture. Please place your name, TA
name and section number on top of the homework (legibly). Make sure you write your name as it a
Homework #2
Due at the beginning of class, October 15th
Monopoly
1. Assume that we have a demand function given as P=250-5Q. What is marginal
revenue for a monopolist?
2. Assume that marginal cost for the monopolist is given as MC=10+5Q (this is for the
s
Homework #3
Due at the beginning of class, October 22nd
Monopsony and Antitrust
1. Assume a demand function given as P=250-5Q. Assume that there is a single
unregulated, profit-maximizing firm in the industry, with constant marginal cost
MC=10. Find the d
Homework #1
EC 360
Due November 8th
BN: Assume Constant Cost Industries Throughout
Lets say we have a perfectly competitive industry in which the demand curve is
described by the equation P=100-2Q. The cost curve for all firms is
1. Solve for the marginal
Homework #1 Key
EC 360
Due January 16th
1. Any firm that is paying out more money than it is taking in should shut down its
operations at once. Is this sound advice?
No. The firm should only shut down operations if it is taking in less than it is spending
Homework #2
1. Assume that we have a demand function given as P=250-5Q. What is marginal
revenue for a monopolist?
MR=250-10Q
2. Assume that marginal cost for the monopolist is given as MC=10+5Q (this is for the
same monopolist from problem one). What is
Homework #3
Due at the beginning of class, October 22nd
Monopsony and Antitrust
1. Assume a demand function given as P=250-5Q. Assume that there is a single
unregulated, profit-maximizing firm in the industry, with constant marginal cost
MC=10. Find the d
Homework #4
Due at the beginning of class, November 12th
Predatory Pricing and Price Discrimination
1. Lets say we have two car companies, Nissan and Toyota. Toyota is a monopolist
and Nissan is thinking of entering. If Toyota is left alone, theyll make $
EC 360
Antitrust History
The history of antitrust is worth studying in
part because economic theory followed
practice, not the other way around
Why focus on America?
Large economy
At or near the technological frontier for the last
century
For the las
EC 360
Degrees of Competition
Perfect competition
Standard
No competition
Monopoly
Imperfect competition
Monopolistic competition
Imperfect cooperation
Collusion with the risk of deviation
Perfect cooperation
Functionally the same as monopoly
Ca
EC 360
Introduction
What is IO?
Syllabus
Expectation
A word of advice
Overview
Perfect competition, monopoly
What is IO?
Industrial organization is the study of how
markets work, how we would like them to
work, and how to get the former to be closer
to t
EC 360
Oligopoly
One seller in a market is a monopoly
Many sellers in a market is a competitive
market
When there are few firms, sometimes they
collude
Were going to think now of competition
between a very small number of firmsoligopoly
Cournot
Lets