Recall from last time. Econ 410: Micro Theory. Cournot Equilibrium. The plan for today. Comparing Cournot, Stackelberg, and Bertrand Equilibria

Save this PDF as:
 WORD  PNG  TXT  JPG

Size: px
Start display at page:

Download "Recall from last time. Econ 410: Micro Theory. Cournot Equilibrium. The plan for today. Comparing Cournot, Stackelberg, and Bertrand Equilibria"

Transcription

1 Slide Slide 3 Recall from last time A Nash Equilibrium occurs when: Econ 40: Micro Theory Comparing Cournot, Stackelberg, and Bertrand Equilibria Monday, December 3 rd, 007 Each firm s action is a best response to each other firm s action in an oligopolistic market The Cournot Model of oligopoly assumes Each firm treats the output of its competitors as fixed All firms decide simultaneously the optimal quantity to produce Reaction curves show: The relationship between a firm s optimal output and the amount it thinks its competitor will produce. Slide Slide 4 The plan for today Announcement Chapter, Exercise #3e will be extra credit Those who get this part of the problem completely correct will have 3 additional points (about 5%) added onto their problem set grade Questions about Problem Set Cournot Model Example The Stackelberg and Bertrand Models Oligopoly Wrap-Up Cournot Equilibrium Cournot equilibrium is an example of a Nash equilibrium But, the Cournot equilibrium says nothing about the dynamics of the adjustment process Since both firms adjust their output, neither output would be fixed at all points in time How can we use our knowledge of the Cournot model to see how firms will behave?

2 Slide 5 Slide 7 To make things simple, assume that firms face the same linear demand curve Each firm has the same constant marginal cost, and no fixed costs. How can we compare the Cournot equilibrium with one where the firms colluded (acted together)? Example Let the market demand curve for widgets be equal to P = 50 - Q Market quantity is Q = q +q Marginal cost for each firm is MC =MC =0 Remember: TR MR 50 q q q 50 q q q Setting MR equal to MC: 50 q q 0 Firm s reaction curve gives the optimal amount of q as a function of q It can be found by solving the equation above for q : 40 q q q 0 q Since both firms have identical costs and face the same market demand curve, we know: q 0 q Slide 6 Slide 8 Remember: P = 50 Q, Q = q +q, MC =MC =0 Firm will maximize profit taking firm s quantity as given: Firm s total revenue = P q But, the price firm will receive also depends on the quantity produced by firm : P = 50-(q +q ) TR = [50-(q +q )] q TR MR 50 q q q 50 q q q The reaction curves for each firm are: q =0 (/)q q =0 (/)q Substituting one equation into the other, we can solve for the Cournot Equilibrium: q =0 (/)(0 (/)q ) q =0 0 +(/4)q (3/4)q =0 q *= q * = 3 / 3 Market quantity = q + q = 6 / 3 Market Price = 50-6 / 3 = $3.33

3 Slide 9 Slide How does the Cournot equilibrium to compare to an equilibrium with collusion? What if the firms worked together to act as a monopoly? Quantity produced under monopoly Finding Marginal Revenue TR = PQ = (50-Q)Q = 50Q Q MR = TR/ Q = 50-Q Setting MR=MC 50 Q = 0 Q = 40 Q* = 0 If firms collude, q * = q * = 0 < 3 / 3 Sometimes one firm is able to enter a market before its competitors Example Pharmaceutical firms with patents The Stackelberg model illustrates cases where one firm sets its output before other firms do. Stackelberg Example Assume as before: P = 50-Q MC=$0 Firm sets output first Firm then makes an output decision seeing Firm s output Slide 0 Slide If firms collude, they will produce less output and earn higher profits than in a Cournot equilibrium q M = q M = 0 < 3 / 3 = q, Cournot Price under collusion P = 50 Q = 50 0 = $30 Total profits under collusion TR TC = PQ - MC Q = ($30-$0)0 = $400 Total profits under Cournot equilibrium TR TC = ($3.33-$0)6.66 = $ What should each firm do? Firm Must consider the reaction of Firm Firm Takes Firm s output as fixed Determines output with the Cournot reaction curve: q = 0 - ½(q ) Let s look at Firm s problem: Choose q such that MR = MC = $0 As before, TR = P q = 50 q - q - q q Firm knows Firm will choose output based on its reaction curve. We can use this!

4 Slide 3 Slide 5 Taking Firm s reaction curve into account, Firm finds optimal output Substituting the reaction curve for q : TR = P q = 50 q - q - q [0 - ½(q )] Finding marginal revenue: MR = TR/ q =30-q Setting MR = MC and solving for q *: 30 q = 0 q * = 0 Using the reaction curve, we find q : q * = 0 - ½(q ) = 0 Price Competition Sometimes oligopolies to compete in prices instead of quantities Price Wars The Bertrand Model is used to explain these situations. It assumes: Firms produce a homogeneous good Each firm treats a competitor s price as fixed All firms decide simultaneously what price to charge What will happen as firms compete? Slide 4 Slide 6 What can we learn from the Stackelberg model? Going first gives Firm the advantage Firm s output is twice as large as Firm s Firm s profit is twice as large as Firm s This allows Firm to produce a large quantity. Firm must account for this in order to maximize profit. The Bertrand Model Since goods in the Bertrand model are homogeneous, consumers will buy from the lowest priced seller If firms charge different prices, consumers buy from lowest priced firm only If firms charge the same price, consumers are indifferent as to who they buy from The Nash equilibrium in this case is equal to competitive output Each firm has an incentive to cut prices Both firms set price equal to MC, and both firms earn zero profit

5 Slide 7 Oligopoly Wrap-Up What have we learned about oligopolistic industries? Firm strategy is a critical component of firm decisions in an oligopoly Each firm must account for the decisions of every other firm in the industry Changing assumptions about price, quantity, and entry dramatically affects predicted industry outcomes Quantities range from those of competition to monopoly, based upon initial assumptions Slide 8 For next time We ll spend most of the class reviewing for the final Bring any questions you might have Please bring a # pencil to class You ll be using them to fill out the teaching evaluation form Problem Set Reminder Due this Wednesday Will be graded and handed back at the final Questions for Review are worth point each, while Exercises are worth points.

Chapter 12. Oligopoly. Oligopoly Characteristics. ) of firms Product differentiation may or may not exist ) to entry. Chapter 12 2

Chapter 12. Oligopoly. Oligopoly Characteristics. ) of firms Product differentiation may or may not exist ) to entry. Chapter 12 2 Chapter Oligopoly Oligopoly Characteristics ( ) of firms Product differentiation may or may not exist ( ) to entry Chapter Oligopoly Equilibrium ( ) Equilibrium Firms are doing the best they can and have

More information

11. Oligopoly. Literature: Pindyck and Rubinfeld, Chapter 12 Varian, Chapter 27

11. Oligopoly. Literature: Pindyck and Rubinfeld, Chapter 12 Varian, Chapter 27 11. Oligopoly Literature: Pindyck and Rubinfeld, Chapter 12 Varian, Chapter 27 04.07.2017 Prof. Dr. Kerstin Schneider Chair of Public Economics and Business Taxation Microeconomics Chapter 11 Slide 1 Chapter

More information

Managerial Economics Chapter 9 Practice Question

Managerial Economics Chapter 9 Practice Question ECO 3320 Lanlan Chu Managerial Economics Chapter 9 Practice Question 1. The market for widgets consists of two firms that produce identical products. Competition in the market is such that each of the

More information

Chapter 12. Oligopoly. Oligopoly Characteristics. Oligopoly Equilibrium

Chapter 12. Oligopoly. Oligopoly Characteristics. Oligopoly Equilibrium Chapter Oligopoly Oligopoly Characteristics Small number of firms Product differentiation may or may not eist Barriers to entry Chapter Oligopoly Equilibrium Defining Equilibrium Firms are doing the best

More information

INTERMEDIATE MICROECONOMICS LECTURE 13 - MONOPOLISTIC COMPETITION AND OLIGOPOLY. Monopolistic Competition

INTERMEDIATE MICROECONOMICS LECTURE 13 - MONOPOLISTIC COMPETITION AND OLIGOPOLY. Monopolistic Competition 13-1 INTERMEDIATE MICROECONOMICS LECTURE 13 - MONOPOLISTIC COMPETITION AND OLIGOPOLY Monopolistic Competition Pure monopoly and perfect competition are rare in the real world. Most real-world industries

More information

Oligopoly: How do firms behave when there are only a few competitors? These firms produce all or most of their industry s output.

Oligopoly: How do firms behave when there are only a few competitors? These firms produce all or most of their industry s output. Topic 8 Chapter 13 Oligopoly and Monopolistic Competition Econ 203 Topic 8 page 1 Oligopoly: How do firms behave when there are only a few competitors? These firms produce all or most of their industry

More information

Econ Microeconomic Analysis and Policy

Econ Microeconomic Analysis and Policy ECON 500 Microeconomic Theory Econ 500 - Microeconomic Analysis and Policy Monopoly Monopoly A monopoly is a single firm that serves an entire market and faces the market demand curve for its output. Unlike

More information

14.1 Comparison of Market Structures

14.1 Comparison of Market Structures 14.1 Comparison of Structures Chapter 14 Oligopoly 14-2 14.2 Cartels Cartel in Korea Oligopolistic firms have an incentive to collude, coordinate setting their prices or quantities, so as to increase their

More information

Chapter 14 TRADITIONAL MODELS OF IMPERFECT COMPETITION. Copyright 2005 by South-Western, a division of Thomson Learning. All rights reserved.

Chapter 14 TRADITIONAL MODELS OF IMPERFECT COMPETITION. Copyright 2005 by South-Western, a division of Thomson Learning. All rights reserved. Chapter 14 TRADITIONAL MODELS OF IMPERFECT COMPETITION Copyright 2005 by South-Western, a division of Thomson Learning. All rights reserved. 1 Pricing Under Homogeneous Oligopoly We will assume that the

More information

Managerial Economics & Business Strategy Chapter 9. Basic Oligopoly Models

Managerial Economics & Business Strategy Chapter 9. Basic Oligopoly Models Managerial Economics & Business Strategy Chapter 9 Basic Oligopoly Models Overview I. Conditions for Oligopoly? II. Role of Strategic Interdependence III. Profit Maximization in Four Oligopoly Settings

More information

The Analysis of Competitive Markets

The Analysis of Competitive Markets C H A P T E R 12 The Analysis of Competitive Markets Prepared by: Fernando & Yvonn Quijano CHAPTER 12 OUTLINE 12.1 Monopolistic Competition 12.2 Oligopoly 12.3 Price Competition 12.4 Competition versus

More information

ECONOMICS. Paper 3 : Fundamentals of Microeconomic Theory Module 28 : Non collusive and Collusive model

ECONOMICS. Paper 3 : Fundamentals of Microeconomic Theory Module 28 : Non collusive and Collusive model Subject Paper No and Title Module No and Title Module Tag 3 : Fundamentals of Microeconomic Theory 28 : Non collusive and Collusive model ECO_P3_M28 TABLE OF CONTENTS 1. Learning Outcomes 2. Introduction

More information

Microeconomics (Oligopoly & Game, Ch 12)

Microeconomics (Oligopoly & Game, Ch 12) Microeconomics (Oligopoly & Game, Ch 12) Lecture 17-18, (Minor 2 coverage until Lecture 18) Mar 16 & 20, 2017 CHAPTER 12 OUTLINE 12.1 Monopolistic Competition 12.2 Oligopoly 12.3 Price Competition 12.4

More information

Chapter 13. Oligopoly and Monopolistic Competition

Chapter 13. Oligopoly and Monopolistic Competition Chapter 13 Oligopoly and Monopolistic Competition Chapter Outline Some Specific Oligopoly Models : Cournot, Bertrand and Stackelberg Competition When There are Increasing Returns to Scale Monopolistic

More information

ECON 230D2-002 Mid-term 1. Student Number MULTIPLE CHOICE. Choose the one alternative that best completes the statement or answers the question.

ECON 230D2-002 Mid-term 1. Student Number MULTIPLE CHOICE. Choose the one alternative that best completes the statement or answers the question. ECON 230D2-002 Mid-term 1 Name Student Number MULTIPLE CHOICE. Choose the one alternative that best completes the statement or answers the question. Scenario 12.3: Suppose a stream is discovered whose

More information

Chapter 15: Industrial Organization

Chapter 15: Industrial Organization Chapter 15: Industrial Organization Imperfect Competition Product Differentiation Advertising Monopolistic Competition Oligopoly Collusion Cournot Model Stackelberg Model Bertrand Model Cartel Legal Provisions

More information

Overview 11/6/2014. Herfindahl Hirshman index of market concentration ...

Overview 11/6/2014. Herfindahl Hirshman index of market concentration ... Overview Market Structure and Competition Chapter 3 explores different types of market structures. Markets differ on two important dimensions: the number of firms, and the nature of product differentiation.

More information

Slides and Images, Worth Publishers Inc. 8-1

Slides and Images, Worth Publishers Inc. 8-1 Perfect Competition Michael J. Murray Slides and Images, Worth Publishers Inc. 8-1 Market Structure Analysis By observing a few industry characteristics, we can predict pricing and output behavior of the

More information

29/02/2016. Market structure II- Other types of imperfect competition. What Is Monopolistic Competition? OTHER TYPES OF IMPERFECT COMPETITION

29/02/2016. Market structure II- Other types of imperfect competition. What Is Monopolistic Competition? OTHER TYPES OF IMPERFECT COMPETITION Market structure II- Other types of imperfect competition OTHER TYPES OF IMPERFECT COMPETITION Characteristics of Monopolistic Competition Monopolistic competition is a market structure in which many firms

More information

Oligopoly Pricing. EC 202 Lecture IV. Francesco Nava. January London School of Economics. Nava (LSE) EC 202 Lecture IV Jan / 13

Oligopoly Pricing. EC 202 Lecture IV. Francesco Nava. January London School of Economics. Nava (LSE) EC 202 Lecture IV Jan / 13 Oligopoly Pricing EC 202 Lecture IV Francesco Nava London School of Economics January 2011 Nava (LSE) EC 202 Lecture IV Jan 2011 1 / 13 Summary The models of competition presented in MT explored the consequences

More information

Do not open this exam until told to do so. Solution

Do not open this exam until told to do so. Solution Do not open this exam until told to do so. Department of Economics College of Social and Applied Human Sciences K. Annen, Fall 003 Final (Version): Intermediate Microeconomics (ECON30) Solution Final (Version

More information

FINALTERM EXAMINATION FALL 2006

FINALTERM EXAMINATION FALL 2006 FINALTERM EXAMINATION FALL 2006 QUESTION NO: 1 (MARKS: 1) - PLEASE CHOOSE ONE Compared to the equilibrium price and quantity sold in a competitive market, a monopolist Will charge a price and sell a quantity.

More information

Principles of Microeconomics Assignment 8 (Chapter 10) Answer Sheet. Class Day/Time

Principles of Microeconomics Assignment 8 (Chapter 10) Answer Sheet. Class Day/Time 1 Principles of Microeconomics Assignment 8 (Chapter 10) Answer Sheet Name Class Day/Time Questions of this homework are in the next few pages. Please find the answer of the questions and fill in the blanks

More information

14.01 Principles of Microeconomics, Fall 2007 Chia-Hui Chen November 7, Lecture 22

14.01 Principles of Microeconomics, Fall 2007 Chia-Hui Chen November 7, Lecture 22 Monopoly. Principles of Microeconomics, Fall Chia-Hui Chen November, Lecture Monopoly Outline. Chap : Monopoly. Chap : Shift in Demand and Effect of Tax Monopoly The monopolist is the single supply-side

More information

Chapter 9: Static Games and Cournot Competition

Chapter 9: Static Games and Cournot Competition Chapter 9: Static Games and Cournot Competition Learning Objectives: Students should learn to:. The student will understand the ideas of strategic interdependence and reasoning strategically and be able

More information

Lecture 22. Oligopoly & Monopolistic Competition

Lecture 22. Oligopoly & Monopolistic Competition Lecture 22. Oligopoly & Monopolistic Competition Course Evaluations on Thursday: Be sure to bring laptop, smartphone, or tablet with browser, so that you can complete your evaluation in class. Oligopoly

More information

Chapter 15 Oligopoly

Chapter 15 Oligopoly Goldwasser AP Microeconomics Chapter 15 Oligopoly BEFORE YOU READ THE CHAPTER Summary This chapter explores oligopoly, a market structure characterized by a few firms producing a product that mayor may

More information

ECON 311 MICROECONOMICS THEORY I

ECON 311 MICROECONOMICS THEORY I ECON 311 MICROECONOMICS THEORY I Profit Maximisation & Perfect Competition (Short-Run) Dr. F. Kwame Agyire-Tettey Department of Economics Contact Information: fagyire-tettey@ug.edu.gh Session Overview

More information

Practice Exam 3: S201 Walker Fall with answers to MC

Practice Exam 3: S201 Walker Fall with answers to MC Practice Exam 3: S201 Walker Fall 2007 - with answers to MC Print Your Name: I. Multiple Choice (3 points each) 1. If marginal utility is falling then A. total utility must be falling. B. marginal utility

More information

Use the following to answer question 4:

Use the following to answer question 4: Homework Chapter 11: Name: Due Date: Wednesday, December 4 at the beginning of class. Please mark your answers on a Scantron. It is late if your Scantron is not complete when I ask for it at 9:35. Get

More information

Chapter 13. Microeconomics. Monopolistic Competition: The Competitive Model in a More Realistic Setting

Chapter 13. Microeconomics. Monopolistic Competition: The Competitive Model in a More Realistic Setting Microeconomics Modified by: Yun Wang Florida International University Spring, 2018 1 Chapter 13 Monopolistic Competition: The Competitive Model in a More Realistic Setting Chapter Outline 13.1 Demand and

More information

C H A P T E R 12. Monopolistic Competition and Oligopoly CHAPTER OUTLINE

C H A P T E R 12. Monopolistic Competition and Oligopoly CHAPTER OUTLINE C H A P T E R 12 Monopolistic Competition and Oligopoly CHAPTER OUTLINE 12.1 Monopolistic Competition 12.2 Oligopoly 12.3 Price Competition 12.4 Competition versus Collusion: The Prisoners Dilemma 12.5

More information

Chapter 14 Perfectly competitive Market

Chapter 14 Perfectly competitive Market Chapter 14 Perfectly competitive Market But first lets look at this Profit Maximization Profit Maximization This occurs where marginal revenue (MR) = marginal cost (MC). MR = MC Marginal revenue is the

More information

Contents. Concepts of Revenue I-13. About the authors I-5 Preface I-7 Syllabus I-9 Chapter-heads I-11

Contents. Concepts of Revenue I-13. About the authors I-5 Preface I-7 Syllabus I-9 Chapter-heads I-11 Contents About the authors I-5 Preface I-7 Syllabus I-9 Chapter-heads I-11 1 Concepts of Revenue 1.1 Introduction 1 1.2 Concepts of Revenue 2 1.3 Revenue curves under perfect competition 3 1.4 Revenue

More information

Syllabus item: 57 Weight: 3

Syllabus item: 57 Weight: 3 1.5 Theory of the firm and its market structures - Monopoly Syllabus item: 57 Weight: 3 Main idea 1 Monopoly: - Only one firm producing the product (Firm = industry) - Barriers to entry or exit exists,

More information

Monopolistic Markets. Causes of Monopolies

Monopolistic Markets. Causes of Monopolies Monopolistic Markets Causes of Monopolies The causes of monopolization Monoplositic resources Only one firm owns a resource which is crucial for production (e.g. diamond monopol of DeBeers). Monopols created

More information

Teaching about Market Structures

Teaching about Market Structures Teaching about Market Structures Felix B. Kwan, Ph.D. Professor of Econ/Finance, Maryville University AP Econ Conference - FRB St. Louis June 17-19, 2015 Profits Foundational Concepts Some basic terms/concepts

More information

Perfect competition: occurs when none of the individual market participants (ie buyers or sellers) can influence the price of the product.

Perfect competition: occurs when none of the individual market participants (ie buyers or sellers) can influence the price of the product. Perfect Competition In this section of work and the next one we derive the equilibrium positions of firms in order to determine whether or not it is profitable for a firm to produce and, if so, what quantities

More information

Economics 101 Midterm Exam #2. April 9, Instructions

Economics 101 Midterm Exam #2. April 9, Instructions Economics 101 Spring 2009 Professor Wallace Economics 101 Midterm Exam #2 April 9, 2009 Instructions Do not open the exam until you are instructed to begin. You will need a #2 lead pencil. If you do not

More information

Eco 300 Intermediate Micro

Eco 300 Intermediate Micro Eco 300 Intermediate Micro Instructor: Amalia Jerison Office Hours: T 12:00-1:00, Th 12:00-1:00, and by appointment BA 127A, aj4575@albany.edu A. Jerison (BA 127A) Eco 300 Spring 2010 1 / 61 Monopoly Market

More information

ECN 3103 INDUSTRIAL ORGANISATION

ECN 3103 INDUSTRIAL ORGANISATION ECN 3103 INDUSTRIAL ORGANISATION 5. Game Theory Mr. Sydney Armstrong Lecturer 1 The University of Guyana 1 Semester 1, 2016 OUR PLAN Analyze Strategic price and Quantity Competition (Noncooperative Oligopolies)

More information

PICK ONLY ONE BEST ANSWER FOR EACH BINARY CHOICE OR MULTIPLE CHOICE QUESTION.

PICK ONLY ONE BEST ANSWER FOR EACH BINARY CHOICE OR MULTIPLE CHOICE QUESTION. Econ 101 Summer 2015 Answers to Second Mid-term Date: June 15, 2015 Student Name Version 1 READ THESE INSTRUCTIONS CAREFULLY. DO NOT BEGIN WORKING UNTIL THE PROCTOR TELLS YOU TO DO SO You have 75 minutes

More information

14.54 International Trade Lecture 17: Increasing Returns to Scale

14.54 International Trade Lecture 17: Increasing Returns to Scale 14.54 International Trade Lecture 17: Increasing Returns to Scale 14.54 Week 11 Fall 2016 14.54 (Week 11) Increasing Returns Fall 2016 1 / 25 Today s Plan 1 2 Increasing Returns to Scale: General Discussion

More information

Monopoly Monopoly occurs when there is a single seller of a good or service. Despite this simple definition that is usually given in textbooks, we

Monopoly Monopoly occurs when there is a single seller of a good or service. Despite this simple definition that is usually given in textbooks, we Monopoly Monopoly occurs when there is a single seller of a good or service. Despite this simple definition that is usually given in textbooks, we must criticize it a bit. Monopoly occurs when there is

More information

Imperfect Competition

Imperfect Competition Imperfect Competition 6.1 There are only two firms producing a particular product. The demand for the product is given by the relation p = 24 Q, where p denotes the price (in dollars per unit) and Q denotes

More information

EconS Perfect Competition and Monopoly

EconS Perfect Competition and Monopoly EconS 425 - Perfect Competition and Monopoly Eric Dunaway Washington State University eric.dunaway@wsu.edu Industrial Organization Eric Dunaway (WSU) EconS 425 Industrial Organization 1 / 47 Introduction

More information

Test 2 Review. Chapter 5, 8 & 9

Test 2 Review. Chapter 5, 8 & 9 Test 2 Review Chapter 5, 8 & 9 Betrand Oligopoly In equilibrium: P 1 =P 2 =MC Profit=0 Perfectly competitive prices can arise in market with only 2 firms Comparison in Oligopoly Models a. Cournot Firm

More information

CONTENTS. Introduction to the Series. 1 Introduction to Economics 5 2 Competitive Markets, Demand and Supply Elasticities 37

CONTENTS. Introduction to the Series. 1 Introduction to Economics 5 2 Competitive Markets, Demand and Supply Elasticities 37 CONTENTS Introduction to the Series iv 1 Introduction to Economics 5 2 Competitive Markets, Demand and Supply 17 3 Elasticities 37 4 Government Intervention in Markets 44 5 Market Failure 53 6 Costs of

More information

Marginal willingness to pay (WTP). The maximum amount a consumer will spend for an extra unit of the good.

Marginal willingness to pay (WTP). The maximum amount a consumer will spend for an extra unit of the good. McPeak Lecture 10 PAI 723 The competitive model. Marginal willingness to pay (WTP). The maximum amount a consumer will spend for an extra unit of the good. As we derived a demand curve for an individual

More information

microeconomics II first module

microeconomics II first module Lecture 2 Perfectly competitive markets Kosmas Marinakis, Ph.. Important notes 1. Homework 1 will is due on Monday 2. Practice problem set 2 is online microeconomics II first module 2013-18 Kosmas Marinakis,

More information

not to be republished NCERT Chapter 6 Non-competitive Markets 6.1 SIMPLE MONOPOLY IN THE COMMODITY MARKET

not to be republished NCERT Chapter 6 Non-competitive Markets 6.1 SIMPLE MONOPOLY IN THE COMMODITY MARKET Chapter 6 We recall that perfect competition was theorised as a market structure where both consumers and firms were price takers. The behaviour of the firm in such circumstances was described in the Chapter

More information

CHAPTER NINE MONOPOLY

CHAPTER NINE MONOPOLY CHAPTER NINE MONOPOLY This chapter examines how a market controlled by a single producer behaves. What price will a monopolist charge for his output? How much will he produce? The basic characteristics

More information

ECON 102 Kagundu Final Exam (New Material) Practice Exam Solutions

ECON 102 Kagundu Final Exam (New Material) Practice Exam Solutions www.liontutors.com ECON 102 Kagundu Final Exam (New Material) Practice Exam Solutions 1. A A large number of firms will be able to operate in the industry because you only need to produce a small amount

More information

Principles of Microeconomics Module 5.1. Understanding Profit

Principles of Microeconomics Module 5.1. Understanding Profit Principles of Microeconomics Module 5.1 Understanding Profit 180 Production Choices of Firms All firms have one goal in mind: MAX PROFITS PROFITS = TOTAL REVENUE TOTAL COST Two ways to reach this goal:

More information

Unit 4: Imperfect Competition

Unit 4: Imperfect Competition Unit 4: Imperfect Competition 1 Monopoly 2 Characteristics of Monopolies 3 5 Characteristics of a Monopoly 1. Single Seller One Firm controls the vast majority of a market The Firm IS the Industry 2. Unique

More information

Practice Final Exam. Write an expression for each of the following cost concepts. [each 5 points]

Practice Final Exam. Write an expression for each of the following cost concepts. [each 5 points] Practice Final Exam Total : 200 points Exam time: 7:00 9:00. You have 6 questions in 3 pages. Please make your diagrams clear and label it. Good Luck! 1. Amy is currently spending her income to maximize

More information

Commerce 295 Midterm Answers

Commerce 295 Midterm Answers Commerce 295 Midterm Answers October 27, 2010 PART I MULTIPLE CHOICE QUESTIONS Each question has one correct response. Please circle the letter in front of the correct response for each question. There

More information

Journal of Industrial Organization Education

Journal of Industrial Organization Education Journal of Industrial Organization Education Volume 3, Issue 1 2008 Article 1 Capacity-Constrained Monopoly Kathy Baylis, University of Illinois, Urbana-Champaign Jeffrey M. Perloff, University of California,

More information

Lecture 5 Competition, Monopoly, Monopolistic Competition and Oligopoly

Lecture 5 Competition, Monopoly, Monopolistic Competition and Oligopoly Lecture 5 Competition, Monopoly, Monopolistic Competition and Oligopoly 1 Overview Firm supply decisions in a perfectly competitive market Short run supply Long run supply Competitive equilibrium Monopoly

More information

MULTIPLE CHOICE. Choose the one alternative that best completes the statement or answers the question.

MULTIPLE CHOICE. Choose the one alternative that best completes the statement or answers the question. Micro - HW 4 MULTIPLE CHOICE. Choose the one alternative that best completes the statement or answers the question. 1) In central Florida during the spring, strawberry growers are price takers. The reason

More information

Monopoly. PowerPoint Slides prepared by: Andreea CHIRITESCU Eastern Illinois University

Monopoly. PowerPoint Slides prepared by: Andreea CHIRITESCU Eastern Illinois University 15 Monopoly PowerPoint Slides prepared by: Andreea CHIRITESCU Eastern Illinois University 1 Market power Why Monopolies Arise Alters the relationship between a firm s costs and the selling price Monopoly

More information

1.3. Levels and Rates of Change Levels: example, wages and income versus Rates: example, inflation and growth Example: Box 1.3

1.3. Levels and Rates of Change Levels: example, wages and income versus Rates: example, inflation and growth Example: Box 1.3 1 Chapter 1 1.1. Scarcity, Choice, Opportunity Cost Definition of Economics: Resources versus Wants Wants: more and better unlimited Versus Needs: essential limited Versus Demand: ability to pay + want

More information

Final Exam Study Questions:

Final Exam Study Questions: Final Exam Study Questions: Practice Multiple-Choice Questions 1. If a consumer purchases only two goods (X and Y ) and the demand for X is elastic, then a rise in the price of X a. will cause total spending

More information

2010 Pearson Education Canada

2010 Pearson Education Canada What Is Perfect Competition? Perfect competition is an industry in which Many firms sell identical products to many buyers. There are no restrictions to entry into the industry. Established firms have

More information

Econ 001: Midterm 2 (Dr. Stein) Answer Key Nov 13, 2007

Econ 001: Midterm 2 (Dr. Stein) Answer Key Nov 13, 2007 Instructions: Econ 001: Midterm 2 (Dr. Stein) Answer Key Nov 13, 2007 This is a 60-minute examination. Write all answers in the blue books provided. Show all work. Use diagrams where appropriate and label

More information

A few firms Imperfect Competition Oligopoly. Figure 8.1: Market structures

A few firms Imperfect Competition Oligopoly. Figure 8.1: Market structures 8.1 Setup Monopoly is a single firm producing a particular commodity. It can affect the market by changing the quantity; via the (inverse) demand function p (q). The tradeoff: either sell a lot cheaply,

More information

Unit 4: Imperfect Competition

Unit 4: Imperfect Competition Unit 4: Imperfect Competition 1 Monopoly 2 Characteristics of Monopolies 3 5 Characteristics of a Monopoly 1. Single Seller One Firm controls the vast majority of a market The Firm IS the Industry 2. Unique

More information

European Competition Policy, Exercisefor the Parts Covered by Prof. Dr. Freytag

European Competition Policy, Exercisefor the Parts Covered by Prof. Dr. Freytag European Competition Policy, Exercisefor the Parts Covered by Prof. Dr. Freytag Sebastian Spiegel LS Wirtschaftspolitik, FSU Jena Winter 2016/17 Exercise European Competition Policy 1 Market Analysis with

More information

Monopoly. 3 Microeconomics LESSON 5. Introduction and Description. Time Required. Materials

Monopoly. 3 Microeconomics LESSON 5. Introduction and Description. Time Required. Materials LESSON 5 Monopoly Introduction and Description Lesson 5 extends the theory of the firm to the model of a Students will see that the profit-maximization rules for the monopoly are the same as they were

More information

Monopolistic Competition Oligopoly Duopoly Monopoly. The further right on the scale, the greater the degree of monopoly power exercised by the firm.

Monopolistic Competition Oligopoly Duopoly Monopoly. The further right on the scale, the greater the degree of monopoly power exercised by the firm. Oligopoly Monopolistic Competition Oligopoly Duopoly Monopoly The further right on the scale, the greater the degree of monopoly power exercised by the firm. Imperfect competition refers to those market

More information

Unit 4: Imperfect Competition

Unit 4: Imperfect Competition Unit 4: Imperfect Competition 1 FOUR MARKET STRUCTURES Perfect Competition Monopolistic Competition Oligopoly Pure Monopoly Imperfect Competition Every product is sold in a market that can be considered

More information

AGENDA Mon 10/12. Economics in Action Review QOD #21: Competitive Farming HW Review Pure Competition MR = MC HW: Read pp Q #7

AGENDA Mon 10/12. Economics in Action Review QOD #21: Competitive Farming HW Review Pure Competition MR = MC HW: Read pp Q #7 AGENDA Mon 10/12 Economics in Action Review QOD #21: Competitive Farming HW Review Pure Competition MR = MC HW: Read pp 173-176 Q #7 QOD #21: Competitive Farming A purely competitive wheat farmer can sell

More information

Microeconomics II. Discussion Class Durban

Microeconomics II. Discussion Class Durban Microeconomics II Discussion Class Durban 1 What to expect? Discussion classes are: overview of the course We focus on what we think are challenging & non revision concepts Give you a start to understanding

More information

ECON 2100 Principles of Microeconomics (Summer 2016) Monopoly

ECON 2100 Principles of Microeconomics (Summer 2016) Monopoly ECON 21 Principles of Microeconomics (Summer 216) Monopoly Relevant readings from the textbook: Mankiw, Ch. 15 Monopoly Suggested problems from the textbook: Chapter 15 Questions for Review (Page 323):

More information

a. Sells a product differentiated from that of its competitors d. produces at the minimum of average total cost in the long run

a. Sells a product differentiated from that of its competitors d. produces at the minimum of average total cost in the long run I. From Seminar Slides: 3, 4, 5, 6. 3. For each of the following characteristics, say whether it describes a perfectly competitive firm (PC), a monopolistically competitive firm (MC), both, or neither.

More information

Game Theory & Firms. Jacob LaRiviere & Justin Rao April 20, 2016 Econ 404, Spring 2016

Game Theory & Firms. Jacob LaRiviere & Justin Rao April 20, 2016 Econ 404, Spring 2016 Game Theory & Firms Jacob LaRiviere & Justin Rao April 20, 2016 Econ 404, Spring 2016 What is Game Theory? Game Theory Intuitive Definition: Theory of strategic interaction Technical Definition: Account

More information

Lecture 11 Imperfect Competition

Lecture 11 Imperfect Competition Lecture 11 Imperfect Competition Business 5017 Managerial Economics Kam Yu Fall 2013 Outline 1 Introduction 2 Monopolistic Competition 3 Oligopoly Modelling Reality The Stackelberg Leadership Model Collusion

More information

Microeconomics 2302 Potential questions and study guide for Exam 2. 6 of these will be on your exam.

Microeconomics 2302 Potential questions and study guide for Exam 2. 6 of these will be on your exam. Microeconomics 2302 Potential questions and study guide for Exam 2 6 of these will be on your exam. Potential questions are in Black Font. Study Guide stuff is in red font. 1. Elasticity question 1 a.

More information

Introduction. Learning Objectives. Learning Objectives. Economics Today Twelfth Edition. Chapter 24 Monopoly

Introduction. Learning Objectives. Learning Objectives. Economics Today Twelfth Edition. Chapter 24 Monopoly Roger LeRoy Miller Economics Today Twelfth Edition Chapter 24 Monopoly Introduction The cement market in Mexico is dominated by a single company that accounts for more than 70 percent of all sales. Why

More information

Preface. Chapter 1 Basic Tools Used in Understanding Microeconomics. 1.1 Economic Models

Preface. Chapter 1 Basic Tools Used in Understanding Microeconomics. 1.1 Economic Models Preface Chapter 1 Basic Tools Used in Understanding Microeconomics 1.1 Economic Models 1.1.1 Positive and Normative Analysis 1.1.2 The Market Economy Model 1.1.3 Types of Economic Problems 1.2 Mathematics

More information

Pricing with Market Power

Pricing with Market Power Chapter 7 Pricing with Market Power 7.1 Motives and objectives Broadly The model of perfect competition is extreme (and hence wonderfully powerful and simple) because of its assumption that each firm believes

More information

Eco201 Review questions for chapters Prof. Bill Even ====QUESTIONS FOR CHAPTER 13=============================

Eco201 Review questions for chapters Prof. Bill Even ====QUESTIONS FOR CHAPTER 13============================= Eco201 Review questions for chapters 13-15 Prof. Bill Even ====QUESTIONS FOR CHAPTER 13============================= 1) A monopoly has two key features, which are. A) barriers to entry and close substitutes

More information

Other examples of monopoly include Australia Post.

Other examples of monopoly include Australia Post. In this session we will look at monopolies, where there is only one firm in the market with no close substitutes. For example, Microsoft first designed the operating system Windows. As a result of this

More information

ECON 115. Industrial Organization

ECON 115. Industrial Organization ECON 115 Industrial Organization 1. The Take-home Final (Final Essay) 2. What have we learned in Industrial Organization? What are the major takeaways? The Final: write a short essay about a firm s or

More information

COST OF PRODUCTION & THEORY OF THE FIRM

COST OF PRODUCTION & THEORY OF THE FIRM MICROECONOMICS: UNIT III COST OF PRODUCTION & THEORY OF THE FIRM One of the concepts mentioned in both Units I and II was and its components, total cost and total revenue. In this unit, costs and revenue

More information

Agenda. Profit Maximization by a Monopolist. 1. Profit Maximization by a Monopolist. 2. Marginal Revenue. 3. Profit Maximization Exercise

Agenda. Profit Maximization by a Monopolist. 1. Profit Maximization by a Monopolist. 2. Marginal Revenue. 3. Profit Maximization Exercise Agenda 1. Profit Maximization by a Monopolist 2. Marginal Revenue 3. Profit Maximization Exercise 4. Effect of Elasticities on Monopoly Price 5. Comparative Statics of Monopoly 6. Monopolist with Multiple

More information

Perfect Competition Chapter 8

Perfect Competition Chapter 8 Perfect Competition Chapter 8 A Perfectly Competitive Market A perfectly competitive market is one in which economic forces operate unimpeded. A Perfectly Competitive Market For a market to be perfectly

More information

MONOPOLY. Characteristics

MONOPOLY. Characteristics OBJECTIVES Explain how managers should set price and output when they have market power With monopoly power, the firm s demand curve is the market demand curve. A monopolist is the only seller of a product

More information

CHAPTER 8. Managing in Competitive, Monopolistic, and Monopolistically Competitive Markets

CHAPTER 8. Managing in Competitive, Monopolistic, and Monopolistically Competitive Markets CHAPTER 8 Managing in Competitive, Monopolistic, and Monopolistically Competitive Markets CHAPTER OUTLINE Perfect competition Demand at the market and firm levels Short-run output decisions Long-run decisions

More information

Economics 101 Section 5

Economics 101 Section 5 Economics 101 Section 5 Lecture #22 April 13, 2004 Chapter 10 Monopolistic Competition Oligopoly Game Theory Monopolistic Competition 3 characteristics of a monopolistically competitive market 1) Many

More information

Refer to the information provided in Figure 12.1 below to answer the questions that follow. Figure 12.1

Refer to the information provided in Figure 12.1 below to answer the questions that follow. Figure 12.1 1) A monopoly is an industry with A) a single firm in which the entry of new firms is blocked. B) a small number of firms each large enough to impact the market price of its output. C) many firms each

More information

Lesson 5: Market Structure (II) 5.1 The Monopoly

Lesson 5: Market Structure (II) 5.1 The Monopoly Introduction to Economic Analysis. Antonio Zabalza. University of Valencia 1 Lesson 5: Market Structure (II) 5.1 The Monopoly A monopoly is a firm that has influence on the price it charges for its product.

More information

#1: Monopolistic Competition

#1: Monopolistic Competition Answers: #1: Monopolistic Competition MC-1. d. All of the terms describe economically breaking even MC-2. c. Economic profits will attract competition MC-3. d. Economically breaking even means you just

More information

ECO110HA: Module 6 AVP Transcript Title: Firm Decisions and the Pursuit of Profit. Title Slide. Narrator: Firm Decisions and the Pursuit of Profit.

ECO110HA: Module 6 AVP Transcript Title: Firm Decisions and the Pursuit of Profit. Title Slide. Narrator: Firm Decisions and the Pursuit of Profit. ECO110HA: Module 6 AVP Transcript Title: Firm Decisions and the Pursuit of Profit Title Slide Narrator: Firm Decisions and the Pursuit of Profit. Slide 2 Title: Market Structures Characteristics Number

More information

ECON 101 Introduction to Economics1

ECON 101 Introduction to Economics1 ECON 101 Introduction to Economics1 Session 12 Market Structures(Monopoly) Lecturer: Mrs. Hellen A. Seshie-Nasser, Department of Economics Contact Information: haseshie@ug.edu.gh College of Education School

More information

MULTIPLE CHOICE. Choose the one alternative that best completes the statement or answers the question.

MULTIPLE CHOICE. Choose the one alternative that best completes the statement or answers the question. Exam Name MULTIPLE CHOICE. Choose the one alternative that best completes the statement or answers the question. 1) Which of the following statements is correct? A) Consumers have the ability to buy everything

More information

Monopolistic Competition

Monopolistic Competition Monopolistic Competition CHAPTER16 C H A P T E R C H E C K L I S T When you have completed your study of this chapter, you will be able to 1 Describe and identify monopolistic competition. 2 Explain how

More information

7 The Optimum of Monopoly, Price Discrimination

7 The Optimum of Monopoly, Price Discrimination Microeconomics I - Lecture #7, March 31, 2009 7 The Optimum of Monopoly, Price Discrimination 7.1 Monopoly Up to now we have analyzed the behavior of a competitive industry, a market structure that is

More information

23 Perfect Competition

23 Perfect Competition 23 Perfect Competition Learning Objectives After you have studied this chapter, you should be able to 1. define price taker, total revenues, marginal revenue, short-run shutdown price, short-run breakeven

More information

Chapter 10: Monopoly

Chapter 10: Monopoly Chapter 10: Monopoly Answers to Study Exercise Question 1 a) horizontal; downward sloping b) marginal revenue; marginal cost; equals; is greater than c) greater than d) less than Question 2 a) Total revenue

More information