MGCR 293 Lecture Notes - Lecture 11: Best Response, Monopolistic Competition, Monopoly Profit
4 Apr 2016
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M an a ge r i al e c o n o m ics. It falls somewhere between monopolistic competition and a single monopoly. It is also given the most attention in the public. Characteristics: high barriers to entry, economies of scale which causes few firms to survive. This market structure encourages cooperation among rival managers in order to increase profits, decrease uncertainty and discourage new entry. In this, each individual firm works with each other to maximize the profits not of the firm but of the entire cartel as a whole. Mc here is the summation of the individual firms marginal costs. One major issue with the cartel is the incentive to cheat. Since the cartel is maximizing the profits of all firms together and not necessarily each individual firm, there may be incentive to cheat. For example, if the price elasticity of demand is elastic, one firm can expand their sales by reducing price.
