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Lecture 13

ECON-101 Lecture Notes - Lecture 13: Oligopoly, Perfect Competition, Strategic Dominance


Department
Economics
Course Code
ECON-101
Professor
Junaid Jahangir
Lecture
13

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CHAPTER 17: OLIGOPOLY
OligarchyFamilies rule the country
Oligopoly – Few key #rms are in this market
- Few sellers
- Di&erentiated products through advertisements
- Very vicious with entry/ exit
oDupoply – 2 #rms in market
oStrategy is very important, competes with other #rms
Ex) If pepsi advertises more, so does coke
Example table 17.1 on page 372
- Pro#t = Total Revenue
- In Perfect competition AR = MR = P, because everyone has
equal access, so solution would be Q = 120, P = 0, Pro#t = 0
- Ex) In monopoly solution would be: Q = 60, P = 60, Pro#t =
3600 (Pro#t Maximization)
- Ex) If 2 people own the source 50/50, Eaxh Q = 30, P = 60,
Pro#t = 1800 (ideal if both people work equally/ share)
oIf 1 person decides to sell at a higher Q than the other
person, the other person loses pro#t, and if the second
person decides to sell at higher Q, both are focuses on
their own pro#t and both end up with less focus.
Q = 40, P = 40, Pro#t = 1600
Nash Equilibrium: When both parties reach that point they have no
incentive to move from that point, considered their equilibrium
Game Theory: Created by generals, trying to gain the upper hand by
strategy. The study of strategy.
Game theory example: (The prisoner’s dilemma)
CODY
MARK Cooperate Cheat
Cooperate 1800, 1800 1500, 200
Cheat 2000, 1500 1600, 1600
If M cooperates, C Cheats
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