ECON 1B03 Lecture Notes - Lecture 41: Nash Equilibrium, Competitive Equilibrium, Oligopoly

• School: McMaster University
• Department: Economics
• Course: ECON 1B03
• Professor: Hannah Holmes

Document Summary

Situation in which economic actors interacting with one another, each choose their best strategy given the strategies that all the others have chosen. Always results in a suboptimal outcome: since products are identical, number of sells increase and oligopoly look like a competitive market. Price would become marginal cost and quantity would mimic socially efficient competitive equilibrium level. Oglipolistic firms there often try to keep out new firms so their profits remain + Price and output effects: output effect p > mc, selling more output raises profits, price effect raising production increases market quantity, which reduced market prices and reduces profits on all units sold. If output effect > price effect firms increases profit. If price effect > output effect reduce production. Game theory: game theory study of how people behave in strategic situations. Strategic decisions are those in which each person, in deciding what actions to take, must consider how others might respond to that action.