MGEA02H3 Lecture Notes - Economic Surplus

• School: UTSC
• Department: Economics for Management Studies
• Course: MGEA02H3
• Professor: Gordon Cleveland

Document Summary

Oligopoly is a market in which there are only a few sellers. So few that they feel the effects of each other"s decisions. (cigarette companies, the banks, oil producers, steel producers, car companies, insurance companies, cereal producers, electronics, etc) When top four firms control large % of sales. Four-firm concentration ratio = share of sales in hands of top four firms in industry. Four firm concentration ratio is over 50% for tobacco products, petroleum and coal products, transportation equipment, primary metals, beverages, metal mining. Suppose we have two firms competing in a given market, producing identical output (homogeneous, standardized product - just like perfect competition). The decision each firm has to make is: How much output should i try to sell, given what i think the other producer might try to sell? . Each firm has mc = ac = , no matter how much they produce (that is, tc1 = 2q1 andtc2 = 2q2)