MATH 133 Lecture 11: Chapter 11
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MATH 133 Full Course Notes
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The perfectly competitive model does not adequately explain many industries that have a large number of relatively small firms. Monopolistic competition studies the behaviour and the outcomes in industries with many small firms, each with some market power. Most modern industries that are dominated by large firms contain several firms. Oligopoly - a market structure where there is a few number of large firms with significant market power. Monopoly - many small firms with little market power. The theory of oligopoly helps us understand industries with few large firms, each with market power, that compete actively with each other. Concentration ratio - measure economic power in an industry and shows the market shares of the largest four or eight producers. Helps us get the measure of economic power in an industry. The larger the concentration ratio, the more likely that the market is oligopolistic; the smaller the concentration ratio, the more likely that the market is monopolistic.